[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
ANTITRUST ENFORCEMENT AGENCIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 15, 2013
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Serial No. 113-67
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Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio JUDY CHU, California
TED POE, Texas TED DEUTCH, Florida
JASON CHAFFETZ, Utah LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania KAREN BASS, California
TREY GOWDY, South Carolina CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, FLORIDA
JASON T. SMITH, Missouri
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
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Subcommittee on Regulatory Reform, Commercial and Antitrust Law
SPENCER BACHUS, Alabama, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California STEVE COHEN, Tennessee
TOM MARINO, Pennsylvania HENRY C. ``HANK'' JOHNSON, Jr.,
GEORGE HOLDING, North Carolina Georgia
DOUG COLLINS, Georgia SUZAN DelBENE, Washington
JASON T. SMITH, Missouri JOE GARCIA, Florida
HAKEEM JEFFRIES, New York
Daniel Flores, Chief Counsel
James Park, Minority Counsel
C O N T E N T S
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NOVEMBER 15, 2013
Page
OPENING STATEMENTS
The Honorable Spencer Bachus, a Representative in Congress from
the State of Alabama, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Ranking Member, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law................ 2
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 4
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 8
WITNESSES
The Honorable William J. Baer, Assistant Attorney General,
Antitrust Division, United States Department of Justice
Oral Testimony................................................. 10
Prepared Statement............................................. 13
The Honorable Edith Ramirez, Chairwoman, Federal Trade Commission
Oral Testimony................................................. 23
Prepared Statement............................................. 25
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Letter from the Professional Flight Attendants............... 6
New York Times Article....................................... 50
Material submitted by the Honorable Blake Farenthold, a
Representative in Congress from the State of Texas, and Vice-
Chairman, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 62
Material submitted by the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 71
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 83
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 84
Response to Questions for the Record from the Honorable William
J. Baer, Assistant Attorney General, Antitrust Division, United
States Department of Justice................................... 86
Response to Questions for the Record from the Honorable Edith
Ramirez, Chairwoman, Federal Trade Commission.................. 93
ANTITRUST ENFORCEMENT AGENCIES
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FRIDAY, NOVEMBER 15, 2013
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 9:10 a.m., in
room 2141, Rayburn House Office Building, the Honorable Spencer
Bachus (Chairman of the Subcommittee) presiding.
Present: Representatives Bachus, Goodlatte, Farenthold,
Marino, Collins, Smith, Cohen, Conyers, Johnson, DelBene, and
Jeffries.
Staff Present: (Majority) Anthony Grossi, Counsel; Ashley
Lewis, Clerk; Philip Swartzfager, Legislative Director for Mr.
Bachus; Jennifer Lackey, Legislative Director for Mr. Collins;
Justin Sok, Legislative Assistant for Mr. Smith; Jonathan
Nabavi, Legislative Director for Mr. Holding; and (Minority)
James Park, Minority Counsel.
Mr. Bachus. Good morning. The Subcommittee on Regulatory
Reform, Commercial and Antitrust Law hearing is called to
order. We will first do our opening statements. My revisions
have arrived just in time.
Today's oversight hearing is an example of this
Subcommittee and the Congress exercising one of its fundamental
responsibilities. Oversight is essential to promoting
accountability and transparency, and it brings to light the
checks and balances envisioned by our Founding Fathers. George
Washington noted in his farewell address that, and I quote,
``The necessity of reciprocal checks in the exercise of
political power has been events by experiments ancient and
modern. To preserve them must be necessary as to institute
them.''
Before us today are the two Federal antitrust enforcement
agencies and their representatives, the Federal Trade
Commission through its Bureau of Competition and the Department
of Justice through its Antitrust Division. I welcome you, and I
am glad that our agencies are back at work after a brief
interruption.
These agencies are entrusted with protecting consumers and
free markets from harmful anticompetitive conduct and
practices. Their mission is best accomplished in a way that is
transparent, fair, predictable, and reasonably stable. When
enforcement is arbitrary and businesses are unclear about what
the rules of the road really are, competition can actually be
impeded, and it is the consumer who ultimately suffers.
One area where there could be an improvement in
transparency and predictability is the FTC's unfair methods of
competition authority under Section 5 of the FTC Act. The FTC's
failure to establish a clear standard for Section 5 has created
uncertainty for businesses and resulted in costly litigation
that could be avoided. And this is not a recent development.
This has been over multiple Administrations. Concerns regarding
the FTC's Section 5 authority have been raised by two of the
four sitting Commissioners, as well as my colleagues in
Congress. To this end, I recently joined Chairman Goodlatte,
Vice Chairman Farenthold, Senator Grassley and Senator Lee and
others in a letter urging FTC to issue guidance on its Section
5 authority. Today's hearing will provide an opportunity to
explore this issue.
We will also use this opportunity to explore the rationale
used by the DOJ when it decides to pursue injunctive relief to
prevent a proposed transaction. The DOJ's recent settlement and
indeed its original decision to file a lawsuit against the
proposed American Airlines and US Airways merger raises
questions about how it makes the determination to intervene in
a proposed merger.
This matter raises questions for some of us in light of the
fact that the Department has approved several similar or even
more problematic airline mergers in the past. It appears to me
to be the case of overcompensating for past omissions, and that
is just my personal view. When an executive agency undertakes
an action that appears to suddenly turn new ground, you wind up
with confusion and uncertainty, and leave businesses wondering
whether to expend significant time and resources pursuing a
strategy that might be thwarted by the government for very
unclear reasons.
There have also been concerns raised regarding the FTC's
record and its administrative proceedings. In a recent column,
the former Policy Director of the FTC, David Balto, found it
troubling that since 1995 the agency has found a violation in
every single case in which it has voted to issue a complaint.
With this kind of record and unbeaten streak that Perry Mason
would envy, a company might wonder whether it is worth putting
up a defense at all in a system where the FTC brings the
complaint, the case is tried before an administrative law judge
at the FTC, and the FTC holds the authority to overturn a
decision adverse to the agency. And I will add to that and
does. My hope is that Chairman Ramirez will address my concerns
about a process that appears to be very favorable to the FTC in
all cases.
Today's hearing will allow for an open discourse on these
and other issues, with the aim of ensuring that Federal
antitrust authority is being properly exercised.
At this time I recognize the Ranking Member for his opening
statement.
Mr. Cohen. Thank you, Mr. Chair.
The Supreme Court has referred to the Federal antitrust
laws as the Magna Carta of free enterprise, saying that the
comprehensive charter of economic liberty aimed at preserving
free and unfettered competition is exactly what that is.
Effective antitrust enforcement is key to ensuring a
vibrant competitive marketplace that rewards innovation and
creativity and offers consumers greater choice and lower
prices. In the absent of antitrust enforcement, companies have
less incentive to compete, more incentive to maintain high
profit margins at the expense of consumer welfare, just like
Delta airlines in Memphis.
At the forefront of the effort to ensure that competition
remains free and fair are the Nation's principal antitrust
enforcement agencies, the Antitrust Division of the Department
of Justice and the Federal Trade Commission's Bureau of
Competition. Each agency has applied efforts to enforce Federal
antitrust laws in recent years. The Justice Department won a
near total victory in the issues with Apple and stopped it from
conspiring with publishers to raise prices for consumers.
Thanks to the Department's work, the consumers will enjoy e-
books that are 40 percent cheaper than they might have been.
The Department has also successfully obtained criminal
fines of more than a billion dollars and obtained prison
sentences for 28 people for criminal antitrust violations,
which are the most harmful types of anticompetitive behavior
like price fixing and bid rigging. Similarly, the FTC has had a
number of notable successes on behalf of consumers, including
the victory before the Supreme Court in FTC v. Actavis, which
found so-called pay-for-delay agreements to be subject to the
antitrust laws.
Meanwhile, both agencies established the principle that
holders of standard essential patents may not seek to exclude
competitors who rely on the standard technology covered by such
patents and must license such technology on reasonable and
nondiscriminatory terms.
My constituents, those in Memphis, Tennessee, are all too
well aware of the consequences of ineffective antitrust
enforcement. As I noted back in February and I noted 2 minutes
ago, the merger of Delta Airlines and Northwest Airlines has
been nothing short of a disaster for Memphis after the merger.
Before the merger they had 240-some-odd flights in and out of
Memphis, or departing Memphis, I think. Now they have but about
40, although Mr. Anderson did come before this Committee and
say it won't affect Memphis, we love Memphis, but we apparently
love something else more.
Those promises in 2008, no hub closures, which just as I
heard in the assurances for American and US Air, and hopefully
they will be more fitting and they were tailored to 3 years,
and Delta waited about 3 years before they finally put the lid
on, that this merged airline would not make that difference.
But Mr. Anderson said we would also have a flight, continue our
flight to Amsterdam and may have a flight to Paris, and, wow,
JFK was going to be in Memphis, the airline at least. Of
course, none of that was true and the Amsterdam flight no
longer exists.
There is a string of broken promises that could have been
avoided if we wouldn't have permitted that merger. They did
everything they could to hurt Memphis, and have. The results,
my constituents are very hurt, very upset, a substantial loss
of air service and a loss of jobs, an airport constructed and
expanded for Delta as an economic hub, much of it is vestigal.
Protecting consumers from antitrust violations is
important. In addition, though, I also hope that Mr. Baer will
tell the Attorney General--and I know it is not your subject
matter and it is not your job to be a messenger, that is not
your job--but there are a lot of individuals in prison with
unjust sentences for mandatory minimums and for people who are
there for crack cocaine disparities, that when they went in
prison they are 100 to 1, they are now 18 to 1. When we changed
law it was called the fair sentencing law. The House passed it,
the Senate passed it, the President signed it. That means it is
the public policy of the United States.
There are people in prison for sentences that are void
against the public policy of the United States. They should
have commutations. There should be somebody heading up the
Commutations Department whose job should be tomorrow, because
there is no time that the fierce urgency of now is more urgent
than people whose liberties are being deprived and for the
taxpayers to spend $30,000-plus to keep these people
incarcerated when it is void against public policy.
So I hope you will take my message back to my good friend
Mr. Holder, who should not be impeached and should remain as a
fine active Attorney General, that he does need to release some
people from prison because they don't need to be there.
I look forward to hearing from our witnesses as to what
efforts the antitrust enforcement agencies are currently
undertaking to help ensure free and fair competition in all
industries, and at some point today I will get on a Delta
airplane and fly through Atlanta to go home.
And I yield back the balance of my time.
Mr. Bachus. At this time I would like to recognize the
Chairman of the full Committee, Chairman Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman.
The protection of our free markets is vital to the success
of the American economy. By creating an environment in which
companies are allowed to compete freely and consumers can
select products without restriction, the allocation of
resources is maximized in accordance with free market
principles. Vigorous, intelligent and predictable antitrust
enforcement promotes these principles by preventing the misuse
of monopoly power. Further, as former Judiciary Committee
Chairman Henry Hyde advocated, strong antitrust enforcement
dissipates political pressure for government regulation.
This Committee has a long and robust effort of oversight of
the antitrust laws and their enforcement agencies. I thank
Chairman Bachus for continuing the tradition by holding today's
hearing. The Committee's history includes legislation that was
enacted into law in 2002 to form the bipartisan Antitrust
Modernization Commission, the AMC. In 2007, after conducting a
comprehensive review of the antitrust laws and their
enforcement, which was done in coordination with leading
antitrust experts and practitioners, the AMC issued a lengthy
report detailing its recommendations for improving antitrust
enforcement.
One of the recommendations contained in the AMC report
focuses on removing the disparities contained in the merger
review processes between the Department of Justice and the
Federal Trade Commission. As the AMC report states, parties to
a proposed merger should receive comparable treatment and face
similar burdens, regardless of whether the FTC or the DOJ
reviews their merger.
A divergence undermines the public's trust that the
antitrust agencies will review transactions sufficiently and
fairly. More importantly, it creates the impression that the
ultimate decision as to whether a merger may proceed depends in
substantial part on which agency reviews the transaction. I
believe this recommendation merits additional attention, and I
look forward to examining this issue with Assistant Attorney
General Baer and Chairwoman Ramirez.
Another area that deserves further examination is the FTC's
involvement in looking into abusive patent litigation
practices. On October 23, 2013, I introduced a bill with a
number of my colleagues to address the growing problem of
abusive patent litigation. I have been following the efforts by
the DOJ and the FTC on this front as well, including the recent
announcement by the FTC that it was seeking certain information
from patent assertion entities. I would be interested to learn
additional details about the FTC's plans regarding this
information collection effort.
I look forward to hearing the testimony today from our
witnesses of the agencies' antitrust enforcement efforts as
well as on these other important issues.
And, Mr. Chairman, thank you and I yield back the balance
of my time.
Mr. Bachus. Thank you.
Mr. Cohen. Mr. Chair, if I can ask for unanimous consent--
--
Mr. Bachus. Absolutely. Then I am going to recognize the
former Chairman and Ranking Member of the full Committee.
Mr. Cohen. Unanimous consent to submit a letter from Ms.
Laura Glading, who is the head of the professional flight
attendants, and she is in love with Mr. Baer and says he did a
great job.
Mr. Bachus. Oh, she says he did a great job? Okay, yeah, we
will introduce that for sure and get him a copy of it. Without
objection, it is introduced into the record. Thank you.
[The information referred to follows:]
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Mr. Bachus. And I will say I think that it was a successful
conclusion, the merger. Obviously when everybody is not
completely satisfied, that is probably a good result.
At this time I would like to introduce our two witnesses--
--
Mr. Cohen. Mr. Chairman?
Mr. Bachus. Oh, I am sorry, that is right. I did a Barney
Frank.
Mr. Conyers. Thank you, Chairman Bachus.
Mr. Bachus. Mr. Conyers is recognized.
Mr. Conyers. Thank you very much.
Today's oversight hearing provides an excellent opportunity
for us to focus on the critical purpose of antitrust law: to
ensure that businesses do not behave in ways that injure
markets and ultimately consumers. As to mergers, this means
that any transaction that would result in a company obtaining
an unfettered ability to raise prices or otherwise harm
consumers is contrary to basic antitrust policy. So we should
be especially skeptical about the potential detriment presented
by a rapid succession of big mergers in a given industry, and,
unfortunately, antitrust scrutiny of mergers has been woefully
insufficient, in my view, over the past 30 years, until only
recently.
The fact that many industries are now dominated by just a
handful of very large firms attests to this failure of
aggressive scrutiny. There has been a wave of mergers in
industry after industry. I won't name all of the examples that
come to mind, but in the banking industry alone there have been
47 mergers since 2001. Basic economics and common sense should
tell us that a few dominant firms forces consumers to pay
higher prices and to accept suboptimal products or services.
This hands-off approach to antitrust merger enforcement
reflects the misguided view that corporate power should trump
other interests, including the public interest, and as a result
the trend in antitrust law has been against the American
consumer.
Fortunately, recent antitrust enforcement initiatives of
both the Justice Department and the Federal Trade Commission
appear to reflect a positive change from prior practice. I am
heartened by the renewed vigor in antitrust enforcement that
these agencies have exhibited in the past year or so. Under the
Obama administration, the Justice Department has aggressively
pursued litigation to block large, high profile, and
potentially anticompetitive mergers, including lawsuits to
block the proposed mergers of AT&T and T-Mobile, Anheuser-
Busch, InBev and Grupo Modelo, and most recently American
Airlines and US Airways. Such actions would for the most part
have been unexpected in previous Administrations going back a
generation.
Even more important is the fact that these suits have
achieved pro-consumer results. AT&T and T-Mobile dropped their
plans to merge, while Anheuser-Busch agreed to divest itself of
all Grupo Modelo's U.S. business in response to the Department
of Justice's lawsuit.
The FTC, meanwhile, was able to achieve an important
victory for consumers before the United States Supreme Court
this year in the FTC v. Actavis case, which held that
agreements between brand name and generic drug manufacturers to
delay the introduction of cheaper generic drugs can be subject
to antitrust laws.
Such successes, however, do not necessarily mean further
oversight is unnecessary. For instance, the Justice
Department's tentative settlement agreement announced earlier
this week with respect to the proposed American Airlines-US
Airways presents some concerns. While this settlement agreement
leaves consumers somewhat better off than they would have been
had the merger gone through as proposed, I remain concerned
that the new merged carrier, which would be the largest in the
world, will result in only four domestic airlines controlling
more than 80 percent of the market. As The New York Times noted
in yesterday's editorial, the agreement simply ignores the
central concern the Department of Justice expressed in its
lawsuit. The four big airlines, United, Delta, Southwest, and
the merged American, will have an even greater incentive to
raise fares and fees because consumers will have fewer choices.
In closing, I note that strong antitrust enforcement is not
possible without adequate resources, and as with other Federal
agencies, the DOJ and FTC must have sufficient funding to pay
for high caliber attorneys, economists, and other staff, and
for vigorous and thorough investigations, and, when necessary,
even litigation.
The continuing budget battles in Congress, including
sequestration and the recent fight over a continuing resolution
that led to the shutdown of the Federal Government, threaten to
sap already limited resources for all of our Federal agencies.
Some of the recent successes in antitrust enforcement would be
undermined and future enforcement efforts could be compromised.
That could return us to the bad old days of lax antitrust
enforcement, with higher prices and fewer choices for
consumers. I urge my colleagues to make every effort not to go
down the road.
I thank the Chairman and return any balance of time I may
have.
Mr. Bachus. I thank the gentleman.
At this time I will introduce our two witnesses. We are
very fortunate to have both of them here this morning. We
appreciate your attendance. Both of them share a common
accomplishment. Both of them were editors of their law reviews,
at Stanford and Harvard. That is quite an accomplishment, and I
commend both of you for being diligent students and obviously
intelligent.
Mr. Baer was sworn in as an Assistant Attorney General for
the Department of Justice Antitrust Division on January the
3rd, 2013. Prior to his appointment, he was a partner at Arnold
& Porter, where he was head of the firm's antitrust practice
group. Prior to his time at Arnold & Porter, he was the head of
the FTC's Competition Bureau from 1995 to 1999. Mr. Baer
received his JD from Stanford Law School in 1975 and served as
editor of Stanford's Law Review. He received his BA from
Lawrence University in 1972, and that is in Wisconsin, where he
graduated cum laude and Phi Beta Kappa.
Our next witness is Chairwoman Edith Ramirez. She was sworn
in as Commissioner of the FTC in April 2010 and designated
Chairwoman by President Obama on March the 4th of this year.
Before joining the Commission, Ms. Ramirez was a partner at
Quinn Emanuel in Los Angeles, representing clients in
intellectual property, antitrust, and unfair competition suits.
Chairwoman Ramirez graduated from Harvard Law School cum laude,
where she served as an editor of the Harvard Law Review and
holds an AB in history magna cum laude from Harvard University.
I welcome both our witnesses. I will go from tradition,
left to right, by recognizing Mr. Baer for your opening
statement.
THE HONORABLE WILLIAM J. BAER, ASSISTANT ATTORNEY GENERAL,
ANTITRUST DIVISION, UNITED STATES DEPARTMENT OF JUSTICE
Mr. Baer. Mr. Chairman, Ranking Member Cohen----
Mr. Bachus. I think we will probably not have a clock, so
if you need 6 minutes, 7 minutes, take that. I don't want you
to rush through your remarks. But if you want 4 minutes, that
is fine.
Mr. Baer. Right. Thank you, sir. It is not the Senate and
we will try not to observe a filibuster approach to our
statements.
It is a pleasure to be here. We thank you for the
opportunity to discuss the work of the Antitrust Division. And
I am very much honored to be here with Chairwoman Ramirez at
the FTC. We for the last 10 months or so have been privileged
to work together on behalf of American consumers.
Competition, as the Chairman and a number of other Members
said in their opening remarks, is the cornerstone of our
Nation's economic system. When markets work properly, consumers
benefit from lower prices and higher quality goods and
services. The antitrust laws serve to promote and protect a
robust free market economy by prohibiting anticompetitive
agreements, anticompetitive conduct, and anticompetitive
mergers that have a potential to distort market outcomes and
ultimately harm consumers.
Let me start with our efforts at the Antitrust Division to
uncover and prosecute cartel behavior. Price fixers and bid
riggers do serious and demonstrable harm to consumers and to
our economy. It is a persistent problem. But we are making
progress in getting at it. Our efforts have resulted in a
dramatic increase in exposing the world's largest price-fixing
cartels, involving such products as air transportation, liquid
crystal displays that are used in flat panel TVs, iPads,
computer screens, and the like, and, most recently, auto parts.
In the last fiscal year alone, the Division filed 50
criminal cases. We charged 21 corporations and 34 individuals
for antitrust crimes that affected tens of billions of dollars
of U.S. commerce. The Division obtained criminal fines totaling
over $1 billion in the last fiscal year, and we sentenced, with
the help of the courts, 28 individuals to jail terms that
average more than 2 years per defendant.
Now, large monetary criminal penalties against corporations
make cartel behavior less attractive, but the threat of jail
time for senior company officials responsible for injuring the
consumers is also in my experience a very powerful deterrent.
Today, the average prison sentence for defendants charged with
crimes by the Antitrust Division is 25 months, over 2 years in
jail. That is three times the average jail sentence in the
1990's.
Taxpayers are well served by the vigorous prosecution of
criminal cartels. The Antitrust Division continually produces
results that more than justify its annual appropriation. In
other words, we think we give your constituents, your
taxpayers, a good return on the scarce dollars you entrust to
us. In the last 5 fiscal years we averaged $850 million in
criminal penalties against an average direct appropriation of
about $85 million.
Now, these dollars that come into the Treasury don't go to
the Antitrust Division, regrettably. They go to the Crime
Victims Fund, which actually helps victims of all types of
crimes throughout the country in each and every State that
Members represent on this Subcommittee.
Civil enforcement of the antitrust laws also protects
competition and consumers by challenging conduct that shackles
free competition and by going after anticompetitive mergers.
For example, earlier this year a Federal court in New York held
that executives at the highest levels of Apple orchestrated a
conspiracy with five major book publishers to raise eBook
prices and end eBook retailers' freedom to compete on price
terms. This was a big win for U.S. consumers. Once our orders
went into place against the book publishers and they were
forced to compete with one another, the price of the average
eBook bestseller, New York Times bestseller, has dropped from
$11 on average down to just about $6 within a year. Once the
illegal agreement stopped, consumers benefited from an open,
free, competitive market.
In addition, the redress, the civil redress that the book
publishers thus far have agreed to pay, will result in hundreds
of millions of dollars being automatically credited to the
accounts of consumers that went to iTunes to buy a book or
bought a book elsewhere online.
Anticompetitive mergers are also important to consumers,
and stopping them is another key part of our job. In January of
this year, as Mr. Conyers mentioned, we filed suit to stop the
merger of the largest and third-largest firms that sell beer in
the United States. We ended up reaching a settlement that
required InBev ABI, the old Anheuser-Busch, to divest the
entire U.S. business of Grupo Modelo--those are the folks that
make Corona and other beers--and create an independent, fully
integrated and economically viable competitor, saving consumers
from the risk of billions of dollars in increased prices.
Also, as has been mentioned, in August the Antitrust
Division and several State attorneys general filed suit to
block the proposed merger of US Airways and American Airlines.
This deal, our complaint alleged, would have harmed competition
for airline travel in local markets throughout the country.
Earlier this week we announced a proposed settlement with
the carriers that if approved by the court would resolve our
lawsuit challenging that merger. Under the agreement US and
American will divest important facilities at seven key airports
across the country. The settlement will enable low-cost
carriers to buy those facilities and expand their presence all
across the country, injecting a new form of competition into
places that have never had it before.
The low-cost carriers have a tremendous price effect where
they are able to fly today, but there are constraints, slots,
gates at various airports, and by giving them access to those
airports we have the potential to inject much more extensive
competition into that marketplace.
At the same time, the settlement allows the new American,
the combined American Airlines and US Airways, to retain all of
the commuter slots that they currently have at Reagan National.
Commuter slots are reserved for small jets and designed to
serve small and medium-sized communities. We let the airline
keep those slots because they weren't important to our remedy,
but obviously the service is important to those communities. At
the same time, the Department of Transportation secured a
binding commitment from the new American that they will
continue to use those airplanes to serve small and medium-sized
communities.
Effective enforcement is critical to what we do, but close
collaboration with other parts of the government also achieves
positive results for American consumers. We work closely with
the Patent and Trademark Office to address issues involving the
International Trade Commission and standard essential patents
subject to voluntary FRAND commitments.
Together with the FTC, we are examining whether there are
legitimate antitrust concerns associated with the growth of
these patent assertion entities. It is the subject of the
legislation that the full Committee Chairman mentioned in his
opening remarks. Together with the FTC, we engage very actively
with foreign antitrust enforcers to promote cooperation,
transparency, and evenhanded application of the antitrust laws
around the world.
Now, while effective and efficient antitrust enforcement
makes our markets more competitive and saves consumers money,
we appreciate that antitrust enforcement itself has to be
efficient and sensitive to the costs we may impose on the
business community. We are working on that.
For example, at the Antitrust Division we have been a
pioneer among government agencies in the use of predictive
coding methods in large volume document productions. I have
only learned about this in the last few months. But it is
essentially allowing search, like Google search terms, to have
companies under investigation, whether it is a merger or a
cartel, to more efficiently identify the documents that are
responsive to us. We have used that in mergers this year. One
law firm told me that we saved their client $2 million by
working together with them on getting efficient production of
the information we need to do our jobs.
Finally, the Antitrust Division, sir, has a longstanding,
consistent, and nonpartisan commitment to American consumers.
We are committed to ensuring that companies adhere to the
antitrust laws so that consumers benefit from lower prices and
higher quality goods and services. I am honored to be part of
the hard-working Antitrust Division team, all of whom are glad
to be back at work. And these dedicated public servants are
fulfilling a law enforcement mission that is delivering every
day real benefits to American consumers. Thank you, sir.
Mr. Bachus. Thank you.
[The prepared statement of Mr. Baer follows:]
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Mr. Bachus. And I was going to actually wait until the end,
but let me say this. I do want to express just personally as a
Member of Congress that I was somewhat embarrassed that the
government did shut down, and I feel like it was a failure of
the Article I body to do what needed to be done. So there were
many of us that were quite disappointed that that happened. So
I personally believe an apology is in order and I do want to
say that, and I hope that we will avoid that in the future.
At this time I will recognize Chairman Ramirez. Yeah,
another Barney Frank thing.
TESTIMONY OF THE HONORABLE EDITH RAMIREZ, CHAIRWOMAN, FEDERAL
TRADE COMMISSION
Ms. Ramirez. Thank you. Chairman Bachus, Ranking Member
Cohen, and Members of the Subcommittee, I appreciate the
opportunity to testify today regarding the Federal Trade
Commission's current antitrust and competition policy efforts.
I want to begin by thanking the Members of this
Subcommittee for the support you have given the FTC. As you
know, competition promotes economic growth and overall consumer
welfare by keeping prices competitive, expanding output and
choices, and promoting innovation. The FTC works closely with
the Department of Justice's Antitrust Division to ensure that
the American economy remains competitive through vigorous
antitrust enforcement, and I am grateful for the excellent
working relationship that we have with Assistant Attorney
General Bill Baer and his colleagues at the Antitrust Division.
We are going to continue to work closely with the Antitrust
Division, as well as with our counterparts in the States, to
enhance antitrust consistency, clarity, and transparency.
One of the agency's principal responsibilities is to
prevent mergers that may substantially lessen competition. In
fiscal year 2013, we challenged 23 mergers that were likely to
have anticompetitive effects. In most of these cases, we
negotiated a divestiture or other remedy that allowed the
transaction to go forward, but in five instances we went to
Federal court to stop the merger.
We also seek to identify and stop anticompetitive business
conduct. Last year we brought four enforcement actions to stop
harmful conduct such as unlawful exclusive dealing and improper
information sharing among competitors.
In an effort to be most effective with limited resources,
we pay particular attention to sectors where our action will
provide the greatest benefit to the largest number of
consumers. Chief among those are the healthcare and technology
sectors.
Anticompetitive mergers and conduct can threaten to
undermine efforts to control healthcare costs. It is therefore
critical that the Commission preserve and promote healthcare
competition, including in healthcare provider and
pharmaceutical markets. The FTC has been at the forefront of
these issues, preventing proposed mergers that threaten higher
costs without related improvements in quality of care. We have
recently successfully litigated three hospital mergers, and
parties abandoned a number of deals after the FTC threatened a
challenge, resulting in significant benefits to consumers.
We also continue to target efforts by brand name drug
companies to stifle generic competition. As has been mentioned,
in June we achieved a significant victory for consumers when
the Supreme Court overturned the so-called scope of the patent
test, which virtually immunized pay-for-delay settlements from
antitrust scrutiny. Now we are in a much stronger position to
protect consumers from anticompetitive drug patent settlements
resulting in higher drug costs.
Given its increasing importance to consumers' lives, the
Commission also seeks to ensure robust competition and
innovation in the technology sector. Among other things, the
Commission has sought to preserve the integrity of the
standard-setting process. The Commission will continue to
engage in an ongoing dialogue with stakeholders in this
important area and bring enforcement actions when necessary to
prevent the distortion of the standard-setting process.
The Commission applies a fact-based approach to enforcement
in markets with new technologies or evolving business models.
Sometimes a changing competitive landscape will lead the
Commission to conclude that a proposed merger is likely to harm
competition now or in the future, as it did recently when
challenging Nielsen's proposed acquisition of Arbitron.
Other times the evidence leads the Commission to close an
investigation without taking action. This was the case in the
Commission's recent decision to close the investigation of
Office Depot's acquisition of rival OfficeMax. Back in 1997,
the Commission stopped the merger of Staples and Office Depot
based on evidence that office supply superstores mainly
competed with each other. But today office supply superstores
face competition from other types of retailers, including big
box and online merchants. This led the Commission to conclude
that the transaction should be allowed to proceed.
These examples demonstrate the enduring vitality of the
antitrust laws. Markets can and do change, but the antitrust
laws remain a powerful tool to protect consumers and to promote
competition.
The Commission also remains active in research and policy.
We recently announced that we will conduct an in-depth study of
the impact of patent assertion entities on technology markets.
Our aim is to expand the information that is currently
available about PAEs and how they operate in order to shed
light on the likely costs and benefits of PAE activity. We
believe this research will help inform the ongoing policy
debate about PAEs.
Thank you, and I am happy to respond to any questions that
you may have.
Mr. Bachus. Thank you, Chairwoman Ramirez.
[The prepared statement of Ms. Ramirez follows:]
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Mr. Bachus. At this time, in lieu of me asking questions, I
am going to recognize the gentleman from Georgia, Mr. Collins,
for 5 minutes.
Mr. Collins. Thank you, Mr. Chairman. I appreciate that.
Thanks for being here this morning on this early Friday
morning.
I appreciate what has been said on the airline mergers. I
would just, however, continue to remember, as we look at
monitoring that for all players in the market, not just a
single set called low-cost markets, all the players in that, as
well as I would encourage you to do that.
Also one of the things, Ms. Ramirez, you just brought up
was health care, and this is something for me this morning as I
was thinking about this hearing, it was something that has come
across. And you spoke of drug costs, and I read about your
decision, especially in the opening statements in oversight.
What concerned me however was the attention to the drug and the
drug costs and the issue that you just brought up.
But the really disappointment in my opinion on the drug
delivery side, and that is where I am going to focus a little
bit this morning, is that I believe there are legitimate
concerns about the conduct of PBMs in the pharmaceutical arena.
I was disappointed by the FTC statement on the ESI-Medco
merger. In my opinion it didn't sufficiently protect the
customers and pharmacy competition. The concerns of independent
pharmacists didn't appear to hold much weight in the statement,
which seemed to be focused more on the effects on entry into
the PBM market and the anticompetitive behavior in regards to
plan sponsors.
There was little mention of the leverage that ESI-Medco
could and I believe will have over pharmacists and pharmacies.
Since the FTC did not act to address the negative impact to
pharmacies that would result from the ESI-Medco merger, there
doesn't seem to be any recourse other than Congress stepping in
and passing legislation to protect the pharmacies and the
consumers.
Just to give everyone here a snapshot of what type of
behavior PBM engaged in, between 2004 and 2008 three major PBMs
were subject to six major Federal or multidistrict cases over
allegations such as fraud, misrepresentation, and failure to
meet ethical and safety standards, just to name a few. These
cases have resulted in over $371 million in damages. I have
heard from consumers that the merger has led to higher prices
and that they have been forced into mail order. This is a very
significant problem for consumers who need specialty drugs.
My question, and I want to sort of preface it, is will the
FTC look into this situation and the problems that are
developed, and we can hold that for just a second, but I am
also very concerned about patients who have critical conditions
and need specialty drugs. It is my understanding through a good
bit of discussion that the major PBMs forced them into receive
these drugs through mail order, which endanger their health.
And what I would like to have is assurances, a commitment to
look into this situation. This is a particular concern for me
in rural northeast Georgia where I am from.
I understand that some PBMs force consumes to use only this
PBM's mail order. Many of my constituents view this as negative
because they rely so heavily on their community pharmacist, who
is often the most accessible healthcare professional and
provides invaluable support to them.
In looking at this, like I said, I applaud both of you for
what your work is, this one is a concern to me, and especially
when you look at some of the things that I have just mentioned
that have come across in the last few years to give basically
a, not necessarily a pass, but a lack of scrutiny to this
delivery system, is what I will call it, that is disparately
impacting community pharmacists and also rural neighborhoods.
Basically I am not asking for an in-depth answer. I am just
wanting that you would take more of a look at the impact not
just on that, but the whole healthcare delivery system that we
have a problem with. And, Ms. Ramirez, I would love for you to
speak to that, and from the processes before on the
prosecutions and other things in that case, I would love just
to hear briefly, and just say that I want to know if my
concerns are going to be taken seriously.
Ms. Ramirez. Yes, absolutely, Congressman. We certainly
understand the concerns that have been expressed by independent
pharmacies when it comes to the PBM market. It is an area that
the agency has looked at very closely in a number of different
settings. Most recently we did examine the merger between ESI
and Medco, and I will say that we looked very closely at three
main aspects of that transaction and what effects they would
have. That included looking on the seller side whether the
transaction would allow the merged entity to exploit market
power in the delivery of services to employers; but we also
looked at the impact on the buyer's side, what impact would it
have on the ability of the merged entity to negotiate with
pharmacies. And we also examined----
Mr. Collins. I apologize for interrupting, but one of the
concerns I have there, and I appreciate you bringing this up,
is there is not a lot of negotiating going on. It is we are
going to do it this way, you will conform to us, or we are just
going to send you to our preferred provider care and we are
shutting out the independent market altogether, and that has
been a concern.
What I would like to do in the short time we have, and I
don't want to take any, is I would love for my office to begin
an open dialogue on further issues that we can see some resolve
here, because I believe that the Congress is going to have to
step in here because undoubtedly we are not getting that I feel
support at this time outside of that. So I appreciate your
answer. And I apologize, I just wanted to make sure that we
could have that dialogue, and that is what I would like to see.
Ms. Ramirez. Let me just say that I am aware of the
concerns and I will assure you that the Federal Trade
Commission will continue to be vigilant in this area.
Mr. Collins. Thank you.
Mr. Chairman, I yield back.
Mr. Bachus. I thank the gentleman.
At this I recognize Mr. Cohen for 5 minutes.
Mr. Cohen. Thank you, Mr. Chair.
Mr. Baer, the stewardess folk said you were most courteous
and saw them personally and they were most appreciative. And
the American Airlines folk I know were very interested and the
flight attendants were very happy about the merger. I hope it
works out well, and I hope it works out well for Memphis.
American has limited service out of Memphis, US Air has some.
But we saw disastrous effects with Delta and Northwest.
While Justice didn't examine that merger as this one was
examined and require certain slots to be given maybe to
Southwest or AirTran at the time or whatever, The New York
Times was fairly excoriating on the decision to allow the
merger to go forth. I am going to give you 1 minute to respond
to The New York Times.
Mr. Baer. I think I managed in 24 hours to get negative
editorials out of The New York Times and The Wall Street
Journal, so I don't know what that says.
Mr. Cohen. One of them is a good thing and one of them is a
bad thing.
Mr. Baer. Okay. And depending on where you sit.
This settlement we ended up concluding was actually better
than a full-stop injunction. Why would I say such a thing? It
is because a full-stop injunction would have kept the legacy
carriers in their current position, which was already pretty
cozy. We did not see lots of meaningful competition on price,
on service, on ancillary fares like baggage fees. And where
there was significant competition and expansion of seats, of
planes being flown from here to there, it was where the low-
cost carriers over the last 10 or 15 years have begun to
establish a presence.
But the problem is the low-cost carriers don't fly
everywhere today, and one reason they don't is that they can't
get access to key airports like LaGuardia, like National. You
open up those airports just a little bit. When the United-
Continental merger concluded, United had to give up all of its
slots at Newark, and within a year they had added nonstop
service to six different cities and driven prices way down. But
in addition they could then connect one stop to other cities
all around the country and there were within a year 60 more
cities benefiting from low-cost service from Southwest.
That is why we thought this settlement, opening up service
and getting rid of capacity constraints at seven major
airports, not only was going to benefit the nonstop travel
between those airports, but there is then the next stop for
Southwest or for AirTran, which still is flying under its name
a little bit, JetBlue, Virgin America. So we think there is
real opportunity here to positively change the competitive
dynamic.
Mr. Cohen. Well, I appreciate that you did something. I
mean, the Justice Department did nothing but allow the Delta-
Northwest to go forth. Of course, the statements made, we would
have thought it was going to be fine. You said that the hubs, I
think in your agreement they had to stay open for 3 years, is
that right, or a minimum of 3 years?
Mr. Baer. There was agreement with the States which
provided that they had to keep their hubs open for an extended
period of time. It didn't mean they couldn't reduce some
service, though.
Mr. Cohen. Yeah, which may happen.
Let me ask you this. I read a story in The New York Times,
and it was published elsewhere, I guess, about several big
banks, including Goldman Sachs, having consolidated ownership
of aluminum warehouses, and they are possibly conspiring to
prop up aluminum prices and shifting these around. This affects
a lot of consumer goods, cars and beer and other cans and
others that are aluminum products, soda cans, so it has an
impact on consumers. Are you aware of this particular issue and
is your Division investigating these concerns?
Mr. Baer. Well, I can't comment on any details. I will tell
you that this is a matter we are looking at.
Mr. Cohen. I would ask unanimous consent to submit this
article entitled ``A Shuffle of Aluminum, but to Banks, Pure
Gold.''
Mr. Bachus. Without objection.
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Mr. Cohen. Thank you, sir.
Ms. Ramirez, I sometimes get a little confused on where
your jurisdiction lies and General Baer's. But are there areas
that you think there is legislation needed to give either you
or General Baer, to give you all more authority?
Ms. Ramirez. Generally speaking I think our authority is
appropriate. There are small areas where we think we should
have more jurisdiction. One issue that comes up periodically
has to do with our ability to litigate independently when we
are seeking civil penalties. Right now we have to refer those
particular matters to the Department of Justice. There are also
certain other areas, such as antitrust exemptions, that both
antitrust agencies, and I certainly, think should be removed,
for example McCarran-Ferguson. But for the most part I think
the authority that the agency has is appropriate for the work
that we are doing.
Mr. Cohen. My red light has gone off, but if the Chairman
would indulge me with one last question, and it is somewhat
like I guess Cato the Elder, but I want to come back to the
sentences. You said that these folks that you convict, 25
months is the average sentence. These folks are mostly business
people, predominantly White, white collar?
Mr. Baer. Yes, sir.
Mr. Cohen. If they had had a gram or two grams of crack,
they might have gotten a life sentence. Don't you just think
that is just unconscionable, that people who rip off the
American consumer and price fixing, et cetera, get 25 months,
and a couple of grams of crack gets you life?
Mr. Baer. Mr. Congressman, I made a note about the message
you wanted me to convey to Attorney General Holder, and I am
going to convey that message.
Mr. Cohen. I appreciate it very much. Because if you read
Nick Kristof yesterday, ACLU just had a report and cited some
cases that are just awful, and there are lots of them.
Mr. Marino. Would the gentleman yield for a moment, please?
Mr. Cohen. Sure.
Mr. Marino. First of all, I agree with my colleague that
The Wall Street Journal was right. And, number two, that----
Mr. Cohen. They are always on the right.
Mr. Marino. And number two, I couldn't agree with him more.
As a prosecutor for 18 years, a DAUS attorney, it is appalling
to me what white-collar criminals get away with and how much
they have caused financial drain on our economy, but, more
importantly, our seniors and middle class working people who
invest the little money that they have into these businesses
that they are hoping that at least generate a little return on
their investment.
So I would insist that the Attorney General's office with a
vengeance go after these individuals, take everything that they
have, follow the money, and then put their tails in prison for
as long as they can.
Mr. Baer. Message received, sir.
Mr. Cohen. Thank you, Mr. Chairman.
And thank you, Mr. Baer.
Mr. Bachus. They told you that they don't expect you to be
a messenger, but then they have sent messages back with you.
At this time Mr. Farenthold is recognized. He actually, I
mentioned before you got here, that you joined several of us on
a letter expressing some concerns with Section 5 and maybe a
lack of guidance.
Mr. Farenthold. Thank you very much, Mr. Chairman.
And, Chairwoman Ramirez, as you are aware, this Committee
has been following the patent troll issue pretty closely, or
actually the entire Committee is working through the Innovation
Act to solve some of the problems that we see with the
litigation process. Congresswoman Chu and I sent letters to you
in June of this year, we had 18 Members signing on to this.
And without objection, Mr. Chairman, I would like to make
that letter a part of the record.
Mr. Bachus. Without objection.
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Mr. Farenthold. So we were urging you to use your Section 5
authority to help end-users of technologies who are facing
patent troll litigation for purchasing products off the shelf.
I know you are now conducting a Section 6(b) study to
investigate the patent troll problem. But in response to the
letter you said most PAE activity is likely to lend itself to
antitrust or consumer protection law enforcement. Therefore, I
am wondering what you are hoping to accomplish with this study
and what does the FTC plan to do with the collected
information?
Ms. Ramirez. This is an area that the Federal Trade
Commission has been looking at for some time, and most
recently. last year we cohosted a workshop with the Department
of Justice to examine PAE activity. What came out of that
workshop mainly were two things. One, that there is an
increasing concern about PAE activity. It appears that PAEs are
engaging in activities that now reach a number of different
sectors rather than just the IT sector, and we are, of course,
aware of concerns about----
Mr. Farenthold. We have had some State attorneys general
actually filing lawsuits against patent control. Do you think
maybe we could get the FTC to take a little bit more aggressive
approach to protecting consumers in this area?
Ms. Ramirez. I can't talk about any details about
investigations, but what I can tell you is that we are aware of
the issue. We are looking at it closely. If we find that there
is either anticompetitive conduct by PAEs or conduct that comes
within our consumer protection authority under Section 5,
deceptive or unfair practices, we will take action.
Mr. Farenthold. Thank you very much.
Mr. Baer, I would like to talk a little bit about the
American Airlines merger as well. I think I made a comment in
another hearing, I don't remember if it was in this Committee
or Transportation, that approvals between United and
Continental and between Delta and Northwest had been approved
and it seemed only fair that American be allowed the
opportunity to grow its network as well. And I am happy to see
that you have gotten to that point and reached a settlement.
I do want to ask about the gate divestitures, particularly
at DCA and LaGuardia. My question is, it seems like we are
giving a preference to low-cost carriers. I have got to be
careful here because I am a big fan of Southwest Airlines and
they have done a real good job keeping the fares down in my
hometown of Corpus Christi.
At what point is it appropriate for the government to pick
winners and losers there, and do we actually have a three-tier
system of the legacy carriers that have merged and the
Southwest-type carriers that are established and becoming more
like legacy carriers every day, and then you move into the
ultra low-cost carriers who basically get all their revenue
from ancillary fees, charge you for a carry-on bag, and the
next thing you know they will be charging you for a seatbelt.
Mr. Baer. Thanks for the question, sir.
In crafting this remedy and requiring these divestitures,
our job, and we do this in any merger settlement where we
require divestitures, we sit down with the merging parties and
make sure that the buyers of those assets are the people that
are going to compete those assets most aggressively for the
American consumer.
Mr. Baer. And we will have a process----
Mr. Farenthold. But is it fair to American to require
testimony to sell to a certain person if they are not, say, the
highest bidder?
Mr. Baer. They have agreed to it, and I think it is fair
because this is a settlement designed to avoid future
competitive problems in an industry. The alternative, which
American and US Air had available to them, was to go to court
and ask the judge----
Mr. Farenthold. I am almost out of time. I just want to
follow up. You made a point that you consider it adequate
service to have a one-connection flight between two cities.
That is kind of out of joint with some of the ideals we have
with DCA, Reagan National trying to get nonstop services to as
many cities as possible. How do you reconcile that desire with
perhaps the more cost-effective one-stop hub-and-spoke system
that even to some degree Southwest is adopting these days?
Mr. Baer. All we are trying to do is to make sure that
consumers get the benefit of competition wherever possible. And
there are many airports where competition is limited because
there are slots that aren't sold, can't be bought, or that
there are gates, O'Hare is a good example, where carriers can't
get in there because there is just not enough room. So by
freeing up some opportunity and letting competition flourish
more than it is able to flourish today, we think we are going
to get a good result for the American consumer.
Mr. Farenthold. I see my time has expired. So thank you
very much, Mr. Chairman.
Mr. Bachus. Thank you, Vice Chair.
At this time I recognize my friend and colleague Mr. John
Conyers.
Mr. Conyers. Thank you, Chairman Bachus.
Mr. Baer, can you give any examples offhand about how
sequestration has affected the Department of Justice? I
understand it has been pretty severe.
Mr. Baer. We had within the Antitrust Division, because of
the rules limiting who could come to work, we had at any one
time, only had about 20 or 25 percent of our employees in able
to do work. And what effect did that have? It meant on mergers,
where we were trying to move mergers along as part of our
responsibility to the business community, we could not do our
job. We could not get back to the lawyers and tell them what
questions we had. There was a delay for the business community.
On matters of litigation, we had to ask the court to stay
things. That slowed things down for us, very inefficient, it
slowed things down for the defendant, and it delayed the day we
get the outcomes and we think that is poor for the consumers.
But, Mr. Conyers, for me it was the fact that I had to tell
people that I did not know if they were going to get paid for
the time they were at home. This was a decision Congress had
not made yet. And we had one pay period where people only got
about 50 percent of their pay for that pay period. It got made
up. But if you were living paycheck to paycheck, that was a
very, very serious consequence to the individual.
So it was a slowdown in our ability to do the job you asked
us to do. But it hurt innocent people. And that is part of what
we all felt and felt badly about.
Mr. Conyers. Thank you so much.
Chairwoman Ramirez, critics, including the Chamber of
Commerce, contend that the FTC's use of its authority under
Section 5 of the FTC Act has been inappropriate to the extent
that it reaches conduct that doesn't violate the Sherman or the
Clayton Acts, and they contend that the FTC's failure to issue
guidelines on its use of section 5 has created uncertainty and
is simply unfair.
Can you comment on that position that they have asserted?
Ms. Ramirez. Certainly. And you will not be surprised to
hear that I disagree with that position. Number one, Congress
very deliberately granted the FTC authority to go beyond the
literal scope of the antitrust laws under its Section 5
authority. The agency in its recent history has used that
authority in a very limited and restrained way. The vast
majority of the enforcement actions that we bring are, in fact,
brought under either the Sherman Act or the Clayton Act, and it
is only in very limited situations that we have used what we
refer to as our stand-alone Section 5 authority.
I also don't believe that the way we have used it has
created uncertainty to the extent that it limits pro-
competitive behavior on the part of businesses. I think we have
acted appropriately in the times that we have used it, and I
also believe that we have provided appropriate guidance about
what motivates our use of Section 5--which ultimately is harm
to competition or harm to the competitive process--the times
that we have used it.
Mr. Conyers. Thank you.
Mr. Baer, is there or are there occasions in which mergers
could be good for consumers.
Mr. Baer. The answer I think is yes, sir. In situations
where markets are not all that concentrated merging parties
sometimes can become more efficient and offer a broader range
of products and services.
We issue joint merger guidelines, guidance to the business
community and the American public jointly with the FTC. We
recently updated those, 2 years ago, and we talked about the
standards we employ, how we look at mergers, when we think we
might have a problem, and what level of concentration in the
market could be a warning sign. So we work very hard to be up
front about what we are looking at, and we recognize that some
mergers, particularly mergers where it is not two competitors
getting together, are likely to have no competition issues and
have the potential, actually, to produce more efficient
companies.
Mr. Conyers. Can I ask you, my last question to both of
you, just a yes or no, do you believe that the McCarran-
Ferguson Act should be repealed with respect to health
insurers?
Ms. Ramirez. I do.
Mr. Conyers. Thank you.
Mr. Baer. The Administration, I think in 2010, communicated
that view to the Congress as a Statement of Administration
Policy.
Mr. Conyers. Very good. Thank you both.
I yield back, Mr. Chairman.
Mr. Bachus. Thank you.
Mr. Marino is recognized for 5 minutes.
Mr. Marino. Thank you, Chairman.
I thank the two of you for being here. I want to get right
to the point. I have three questions I want to bring, three
issues. The first one is search engines, the big companies. The
second one is going to be addressing the issue of patent troll
letters. And the third one is going to be the merger of Express
Scripts and Medco merger.
So let's get into search engines. In the past, the FTC has
addressed concerns about the manner in which certain major
search engines are aggregating information. Do you see or do
you feel that these major companies are currently adhering to
the best practices of the way search engines should be
operating?
Ms. Ramirez. Well, Congressman, as you know, earlier this
year, we, the Commission, issued a unanimous decision closing
its search investigation of Google, and we outlined the reasons
for that decision in a closing statement. But what I can tell
you is that we are going to continue to monitor the
marketplace, and if we see that a company, whether it is a
company that engages in search or any other company, engages in
anticompetitive activities, we are going to take action.
Mr. Marino. Is there a time or is there an area where you
are watching as to whether the percentage of the market that a
particular search engine group or entities in combination would
control that market? Is that a factor?
Ms. Ramirez. Sure. When we are evaluating whether there is
a violation of the Sherman Act and specifically Section 2 of
the Sherman Act, we would be looking at the issue of dominance,
and that would be a factor in our analysis.
Mr. Marino. General, as an attorney and as a U.S. attorney
I know you can't get into the details or give an opinion, but
what are you looking for in the computer tech age now with
companies that dominate a major portion of the market? And I am
not indicating in any way that I think that is always bad.
Mr. Baer. Thank you, sir. What we look for, similar to the
FTC, is where somebody has not just been successful, because
you don't want to penalize success--companies get big because
they are better, they are more efficient, they price lower, and
we don't want to deter that behavior at all--but sometimes
people get big and they start pulling up the ladder or grease
the ladder so nobody else can get up.
It really is the behavior on top of being successful, when
you are using your elbows a little bit to muscle people out of
the way, that in sort of plain talk is where we start to get
interested.
Mr. Marino. Please keep an eye there. Okay.
Chairwoman, let's switch to patent trolls. What, if
anything, is FTC doing concerning patent troll letters? Have
you been actually reading patent troll letters? Do you have any
suggestions as to what can be done with them?
As far as I am concerned the information--the demand
letters are really vague. We don't know who really is pursuing
this. And can you tell me any plans you may have concerning
patent troll letters?
Ms. Ramirez. So I think there are two main areas where the
agency can be of assistance when it comes to this issue about
the activities of patent assertion entities.
One is that we can be vigilant in monitoring the
marketplace to ensure that there is no violation of the
antitrust laws, and also under our consumer protection
authority under Section 5. And we are doing that. I can't
comment on any details of investigations, but I can tell you
that we are aware of the issue, and where there has been
deceptive conduct we would be in a position to take action.
At the same time, we aren't an agency that is evaluating
the strength of particular IP, so there are limitations in what
we can do in addressing some of the issues that are raised by
PAE activity.
Mr. Marino. Okay. What do you think of this idea: What do
you think of making it mandatory that whoever is sending a
patent patent troll letter out has to state boldly on that
letter that you are not required by law to respond to this
letter?
Ms. Ramirez. Let me say that I would have to think more
about it. I have heard about this idea and I would need to get
more details and be able to study it. But I----
Mr. Marino. I am pushing this. This is an aspect that I am
pushing on these letters.
Ms. Ramirez. I understand. I am supportive of efforts that
are being made to reform the patent system to weed out weak IP
and also efforts to allow companies to defend against frivolous
litigation.
Mr. Marino. My last question is to Express Scripts and
Medco mergers. Is the commission planning to take any steps to
look into the anticompetitive behavior currently that I am
seeing and could you speak on that about the anticompetitive
behavior in this merger that I feel has taken place?
Ms. Ramirez. As you know, we did decide to close the
investigation and allow the merger to go forward last year. We
issued a very detailed closing statement outlining the areas
that we examined and the reasons why we felt that it was
appropriate to close the investigation. There hasn't been much
time that has elapsed. I am not aware of any evidence----
Mr. Marino. Okay.
Ms. Ramirez [continuing]. Of their being anticompetitive
conduct that has transpired since the merger. But I am happy--
--
Mr. Marino. I am sorry. I see my time is running out. But I
would ask unanimous consent, I would like to submit some other
questions to our distinguished panel----
Mr. Bachus. Without objection.
Mr. Marino [continuing]. And expanding on the questions
that I did ask. So it will be in detail. And thank you very
much. I yield back.
Mr. Bachus. And all Members will be given an additional 5
days to do that.
At this time, I recognize Mr. Johnson for 5 minutes.
Mr. Johnson. And I will yield to Ranking Member Conyers for
a second.
Mr. Conyers. I would just like permission to put into my
statement the New York Times editorial of yesterday commenting
on the unwise airline merger.
Thank you very much.
Mr. Bachus. Thank you.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Bachus. Mr. Johnson.
Mr. Johnson. And I also would like to submit for the record
with unanimous consent a letter from the flight attendants of
American Airlines----
Mr. Bachus. Without objection.
Mr. Johnson [continuing]. Voicing their strong support for
the merger.*
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*Material previously submitted, see page 6.
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Mr. Bachus. Their strong support for the merger?
Mr. Johnson. Yes.
Mr. Bachus. Okay.
Mr. Johnson. Between American Airlines and US Airways.
Mr. Cohen. And their love of Mr. Baer.
Mr. Johnson. Well, no comment on that.
Mr. Bachus. Something for everything in these submissions.
Mr. Johnson. But I would take us back to the days of Ronald
Reagan coming in. Ronald Reagan said that government is not the
solution, government is the problem. He said government is the
problem, not the solution.
And that kind of was in keeping with a wave going across
the American economy, a wave, a Milton Friedman economic wave
of laissez-faire capitalism. Let the fox guard the henhouse
basically is what that economic philosophy holds. And we have
been following that for the last, what, 30 years? And we have
been incessantly and sometimes drunkenly cutting the Federal
budget and trying to make government smaller, downsizing,
privatizing, you know, making government so small that you
could drown it in a bathtub. That is what Grover Norquist has
advocated. And, in fact, many Members of Congress have signed
on that pledge and have adhered to it.
What impact does this historical shredding of government's
capacity to enforce antitrust laws, what impact has it had on
your ability to guard the henhouse, government's ability to
guard the henhouse, as opposed to turning it over to the
private sector to guard themselves and then let everything
trickle down, it is going to work out according to the free
market principles? Where are we as far as that is concerned.
Mr. Baer. Thank you for the question.
In our prepared statements, both of us talked about the
fact that as antitrust enforcers, we are actually policing the
free market so that the business community can compete
aggressively and deliver better products, better service at
lower prices. So we obviously are committed to the view that
there is tremendous value added.
In my prepared remarks, I noted that in criminal penalties
alone against corporations for price fixing and bid rigging,
and we have unveiled serious conspiracies involving
international companies, we are generating an average of $850
million in criminal penalties.
Mr. Johnson. But my question is, I know that the work is
effective and that it inures to the benefit of consumers, as
well as the competition in the business community, small
businesses versus larger businesses. But what is the impact of
the incessant and drunken budget cutting that has been taking
place over the last 30 years?
Mr. Baer. We are privileged, I think, as antitrust
enforcers--I am not dodging the question--but we have actually
had fairly good bipartisan support for antitrust enforcement
over the years. That hasn't always translated into dollars.
Mr. Johnson. How has this impacted your ability to carry
out your mission, the budget cuts?
Mr. Baer. Let me give you good examples, sir. Because of
the current sequester, I have been unable to hire the criminal
prosecutors that I need to return the sorts of criminal
penalties I referred to earlier in my statement. We are down
from about 125 criminal prosecutors to 85 right now.
If the budget situation resolves itself, the Justice
Department is going to hire those people and get them back on.
But when the uncertainty is hanging over us all, there is a
hiring freeze that has had to be imposed. So there is a real
world example of how uncertainty can affect our ability to get
the troops we need to go out and do a good job for the American
consumer.
Mr. Johnson. All right. Thank you. And that affects our
overall ability to be competitive with other Nations, companies
in other Nations around the world.
So I do want to thank also you both for working with my
office on the APPS Act and also arbitration fairness. But now
arbitration fairness with this recent U.S. Supreme Court
ruling, American Express v. The Italian Colors Restaurant,
wherein it was ruled that arbitration, a mandatory or forced
arbitration agreement can trump the antitrust laws. What is
your analysis----
Mr. Bachus. You can briefly answer.
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Baer. What I will do is get you an answer for the
record, sir, because when I was at a private law firm I
represented some credit card companies. That is one area where
other people do the thinking and do the communicating for me.
Mr. Johnson. All right. How about you, Ms. Ramirez?
Mr. Bachus. Thank you.
Mr. Smith from Missouri.
Mr. Johnson. Could I have an answer from Ms. Ramirez to
that question, Mr. Chairman?
Mr. Bachus. Yes. I am sorry.
Mr. Johnson. Thank you.
Ms. Ramirez. Let me just say that we, the Federal Trade
Commission, I believe this general view is also shared by the
Department of Justice, are concerned when private litigants
aren't permitted to enforce the antitrust laws. We believe that
that is an important component and complement to the public
enforcement that we engage in which we believe is quite vital
to ensure that there is a fair and level marketplace.
Mr. Johnson. Thank you.
Mr. Bachus. Mr. Smith.
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Smith. Thank you Mr. Chairman.
Madam Chairwoman, my question, over the last two decades
the Commission ruled in its own favor in every single case it
has brought in its internal court, even when its administrative
law judges ruled in favor of the defendant.
Can you comment on the Commission's record and inform the
Committee whether there are any actions at the FTC plans to
take to address this imbalance?
Ms. Ramirez. Let me say first that I believe that is too
narrow a lens with which to examine concerns about whether or
not the procedures under the FTC's administrative processes are
fair and efficient. I believe that they are. There have been
instances both where the administrative law judge has disagreed
with the FTC staff that is litigating the matter before them,
what we refer to as complaint counsel. There have also been
instances when the Commission has in turn ruled against
complaint counsel.
But I think the question to be asked here really is to look
more broadly and to look at the process as a whole. And when
you take into account the fact that there is a very thorough
investigation that is performed by FTC staff, before even
proceeding with an enforcement action, then you have a
bipartisan expert commission who is examining the matter and
making a determination about whether to proceed, then at that
point in time we are able to proceed either by going to Federal
court or administratively, when we go administratively, the
matter is tried before an administrative law judge. It can then
be appealed to the Commission and we would, at that point in
time, look at the whole trial record before making a
determination. And then that, in turn, can be appealed to the
court of appeals.
So I think when you examine the process as a whole, in my
view, it is quite clear that the process is fair.
In addition, I will note that there had been concerns
expressed about delays in that process. We took those to heart,
and in 2009 the Commission streamlined its administrative
processes. And I believe that now the time that it takes to
litigate under our process is comparable to the time that it
would take to litigate in Federal court.
So when looking at the process as a whole, I do believe
that the agency approaches matters and makes decisions on a
fair and equitable basis.
Mr. Smith. You know, I read here that Commissioner Wright
before he joined the Commission published in a report saying
the Commission has reversed at a rate that is four times that
of a general Federal judge. To me that seems like that is an
imbalance. Do you not agree with that statement?
Ms. Ramirez. A court of appeals is obviously going to be
examining issues that the agency looks at and may have a
different view of what the law is.
Just by way of example, I will note that in the pay-for-
delay arena, the FTC lost before the courts a number of
different times, but ultimately made its way to the U.S.
Supreme Court, and the Supreme Court ended up agreeing with our
view that reverse payment settlements ought to be subjected to
antitrust scrutiny.
So sometimes we need to be persistent in pursuing the
development of antitrust doctrine when we believe that there is
anticompetitive conduct at issue. I recognize that we have been
reversed on occasion, but I think we look at these matters very
closely and proceed only when we believe there is harm to
competition or harm to the competitive process.
Mr. Smith. I do think that it is something you need to look
into being that two decades is a long time. That is 20 years. I
am 33 years old. So in 20 years the Commission has found every
case on their side. I think that is an imbalance and I think
that is something you all need to look at.
Mr. Bachus. Thank you.
Ms. DelBene.
Ms. DelBene. Thank you very much, Mr. Chair. You are
working on pronouncing my name.
Mr. Bachus. That is right.
Ms. DelBene. You did a great job.
I thank both of you for taking the time to be here today.
Mr. Baer, I am on the Agriculture Committee as well as this
Committee, and my district has many farmers, dairy and berry
farmers, specialty crop farmers. And I understand that the
Department of Justice and the Department of Agriculture
corroborated in 2010 on a series of hearings on competition
issues which affected the agricultural sector. And I know that
farmers and producers all across our country and as well as
consumers of our Nation's food supply rely on the benefits of a
competitive and fair marketplace.
So how have the 2010 hearings influenced the DOJ's
enforcement strategy in this area? What are your plans to
ensure fair, open, and equitable markets for our Nation's
farmers?
Mr. Baer. Thank you for the question.
Those hearings resulted in a report which we sent to both
this Committee and the Senate Judiciary Committee laying out
our findings. We have used that report to work together with
the State Attorneys General, who sometimes are a little closer
to the ground in terms of being able to communicate with
farmers, producers, including livestock producers, for example,
who have issues.
We have a team of lawyers and economists who specialize in
agricultural antitrust, agricultural economics. And we have had
some investigations. We continue to look at this matter. We
realize that this is an important part of our ongoing antitrust
responsibility.
Ms. DelBene. Thank you.
I also had a question, I know last year The Wall Street
Journal reported that the DOJ was investigating whether cable
companies were acting improperly to stifle competition from
online video services. And to the extent that you can discuss
this, I was interested in why you looked into this matter and
any feedback you have for us.
Mr. Baer. I can't get into the details, other than to say
in any industry if there are agreements being made that injure
consumers unfairly, inappropriately, part of our mission is to
take a look at them. And where those issues crop up, whether it
be in the cable industry on delivery of programming or anywhere
else, our job is to go in as fast as we can and determine
whether or not there is a problem that requires attention.
Ms. DelBene. Thank you. I know we are short on time so I
will yield back.
Mr. Bachus. I appreciate that.
Mr. Jeffries, I am going to go ahead and let you go next
and then I will wrap up. An d they can tell me how much time I
have.
Mr. Jeffries. Okay. Thank you very much, Mr. Chairman.
And thank you to the two witnesses. And I will try to
expedite my questioning given the calling of votes.
Let me start with Chairwoman Ramirez. So the FTC I guess
announced on September 30 that you are going to move forward
with a 6(b) study of the PAE problem. Is that correct?
Ms. Ramirez. About PAE activity, yes.
Mr. Jeffries. What is your understanding of the nature of
the issue and/or problem, if you would characterize it as such,
that you will be studying?
Ms. Ramirez. So let me clarify what it is that we are
doing. And, again, what we are doing with this study that we
have just recently announced is to build on the prior work that
the agency has done in connection with patent assertion
entities, and that includes discussion and inquiry that we had
and we addressed in a report we issued back in 2011. Then last
year we had a joint workshop with the Department of Justice.
And two things emanated from that workshop. One is that this is
an area of growing concern. But secondly, we also found that
there is very limited data about what PAEs are actually doing,
what the business model is, what type of patents they hold.
So we felt that it was appropriate to use our research
function and our authority under 6(b) of the FTC Act to gather
more information. So I want to make sure that it is clear that
what we are doing is really information gathering and what we
hope to do is shed light on what the costs and benefits are of
PAE activity.
There are supporters of what PAEs are doing who argue that
PAEs allow particularly small inventors to monetize their
patents. And then there are critics who say that this activity
is really creating a burden and imposing undue costs on
business. And so we are trying to examine and shed light on
that broader policy question.
Mr. Jeffries. Thank you. And when do you expect to complete
that study?
Ms. Ramirez. Studies that are analogous to this one in the
past have taken approximately a year and a half to 2 years. We
are going to move as quickly as we can, but that gives you a
general idea about the possible timing.
Mr. Jeffries. Thank you.
And, Mr. Baer, the proposed settlement between American
Airlines and US Air, in my understanding, requires that the
combined airlines divest approximately 7 percent of their slots
from LaGuardia Airport. Is that correct?
Mr. Baer. I think that is correct, yes, sir.
Mr. Jeffries. And how did the DOJ arrive at that 7 percent
number?
Mr. Baer. We asked them to divest certain slots that were
already being leased to Southwest and that were actually
producing significant consumer benefits. If the merger went
forward, those slots would have reverted back to the new
American. So we were able to maintain that competitive
presence.
There was a total of 34 slots. I believe that was the
number of slots that American brought to the table, that we
were basically saying that there cannot be growth on the part
of the combined airline in terms of slots in and out of
LaGuardia. That was certainly our position at National Airport
here. I believe it was the same as to La Guardia.
Mr. Jeffries. After the divestiture, will those 34 slots be
held by Southwest Airlines or will they be open to a process by
which other airlines will have an opportunity to secure them?
Mr. Baer. Certain of the slots that are currently leased to
Southwest, they will have the right of first refusal to come in
and get those. The rest we will open up to other air carriers
to come in and persuade us that they are going to compete those
assets aggressively on behalf of the American consumer.
Mr. Jeffries. Thank you.
Thank you Mr. Chair. I yield back.
Mr. Bachus. Thank you.
I will now ask some questions, and at the end of that that
will be the end of our hearing.
I want to start with what I consider maybe the most
important point, and that Mr. Smith brought up, and I know Ms.
Ramirez, or Chairwoman, you responded that you think the
process is fair. So I want to ask you to keep an open mind.
As he said, every time that the FTC has decided to bring an
action and it goes to the administrative law judge, in a
certain number of those cases the administrative law judge
rules in favor of the company that action is being brought
against. But in all of those cases over the last 20 years when
it went back to the Commission, there was a vote to proceed. So
that was actually against the administrative law judge. And
then when you proceeded with the case and it was appealed by
the defendant and it went to a Federal district court, the
Commission was reversed at four times the rate that Federal
district judges normally reverse cases.
So it does appear, I mean over the last 20 years, and I
know that is, you know, you say, well, that is 20 cases, but it
appears as if the Commission always proceeds, I mean, even if
the administrative law judge says I have got serious questions.
And I know some of those decisions by the administrative law
judge have been 20 or 30 pages of saying, no, this isn't the
case, and then the Commission decides to proceed.
And then in a number of those cases where the company then
appeals to the Article 3 courts, the Article 3 courts decide
that the FTC has erred. And it at least in calling balls and
strikes, it does appear as if it is somewhat stacked against
the defendant. So I am not going to--I know you have already
responded.
And one thing, we said maybe what would clear this up is if
you could issue guidance. And I know we got a letter back from
you that the Senators and I, we wrote, saying that you didn't
feel like you--instead of issuing guidance on the FTC's Section
5 authority, you ought to just look at the cases. You have
issued guidance on consumer unfairness. I am just going to urge
you again to reconsider.
Ms. Ramirez. So if I may very briefly say a couple of
things. One is, in terms of the statistics, I think it is a
more nuanced picture than has been described. And I am happy to
provide more detail----
Mr. Bachus. Sure, and I would love that. Let's start with
that.
Ms. Ramirez. But let me just say that I haven't examined
the statistics that Commissioner Wright mentions.
Mr. Bachus. Sure. And even, you know, not only two of the
Commissioners, two of the four Commissioners have said they
don't believe it is fair, but also the editorial. And he
testified before this Congress, Mr. Balto, who was a policy
director at the FTC, even he, you know, he says that there
needs to be some changes, that it hadn't been fair. And what I
am saying, you know, it is very costly when these cases are
brought.
Now, I want to say in that regard, I want to commend the
Department of Justice for what you have done on discovery to
lighten the cost. Because, as you know, and I am a former
litigator, companies, you know, I represented the railroad,
sometimes you settled just because the discovery is so
expensive. And I commend that, that you have lessened that. I
think that in and of itself makes a fairer system.
But I am just saying to you, let's continue this dialogue.
I note, you know, you appear to be sort of dug in on this
issue.
Ms. Ramirez. No.
Mr. Bachus. And I understand you have looked at it. But
let's continue to talk. Maybe what you do is you just give some
clearer guidance if you could.
Ms. Ramirez. If I may just take a minute to respond very
briefly. I want to separate the two questions that you asked,
one that relates to Section 5 guidance and the other about the
concerns about our administrative process.
I think they are separate because the issue that you raised
and the issue that some of my fellow Commissioners have raised
about Section 5 guidance relates to a very narrow, limited
number of cases in which the agency has acted beyond the
literal scope of the antitrust laws.
Mr. Bachus. But in most cases, it is unanimous.
Ms. Ramirez. So the broader question about----
Mr. Bachus. It is not? Okay.
Ms. Ramirez [continuing]. Those involve the Sherman Act. I
want to clarify that the Section 5 issue about guidance really
does relate to a small number of cases, and I am happy to
provide you with additional information.
And let me also say that I take your concerns very
seriously and I am open to and we are going to continue to have
an internal dialogue about that Section 5 issue.
Mr. Bachus. That is all I ask for.
The airline merger. You answered my most serious concern,
Assistant Attorney General, when you said that you asked US Air
and American to preserve those flights to smaller cities and
towns, the commuter flights, and that is what a lot of our
concern was, will those flights go away? Because I have even
had Members of Congress come up to me and say, hey, they are
now flying to Bangor. They have never done that. They are now
flying to Knoxville, a direct flight. So I really appreciate
that.
I do wonder if, and two or three others mentioned the
legacy carriers where you have kind of carved out the low-cost
carriers, and I understand the benefit where that brings down
the cost between Chicago and Washington and different large
cities and Washington. But the legacy carriers also have the
small commuter planes. For instance, Dallas, Love Field, there
is a monopoly by Southwest there. And I join everybody else,
Southwest brought down fares in Birmingham, they halved the
fares.
I do want to say I looked at this editorial and the third
paragraph, I would never say The New York Times would mislead
someone, but it says that competition would decline
significantly on more than a thousand routes where the two
companies currently compete head to head. They don't really
compete effectively head to head. And there is only overlapping
routes.
I don't consider if you have to fly from here to Dallas and
then back to Birmingham over an 8-hour period that that is head
to head with a direct flight from here. So I think that is a
little bit of a--it doesn't tell the complete story.
And then it says that they would control 69 percent of the
takeoffs at Reagan. Well, they control more than that now. So
it is not like you made that decision.
But do you have any further comment? But I do appreciate
what you said about commuter airlines.
Mr. Baer. Thank you, sir. And I think by the divestitures
we are requiring at National we will ensure that not all of
those slots--that it will be closer to about 56 percent of the
slots--that new American will hold, and the rest of those slots
we are going to make sure go out to folks who are going to
provide more opportunity to go more places out of National
Airport.
Mr. Bachus. All right. Thank you.
I want to quickly say that there are a lot of concerns
among Members about the hospital mergers, which were brought
up, and also the community pharmacist issue. And I appreciate,
I know you all moved and took some action on a hospital merger,
and I think that is a concern, so I appreciate your vigilance
on that. And you have also said to other Members that you are
aware of the importance of community and local pharmacists and
the role they sometimes play on advising people, that ability
to go in and talk to your local pharmacist.
With that, I would just say Rachel at Card Services, you
know, we get more calls on that than anything else. And that is
a criminal enterprise. And I just urge you to make that a
priority because Card Services, this so-called Card Services
harasses millions of Americans. You know, their phone rings 18
hours a day. And I know we have discussed that and you all are
trying to innovative, and this is a sophisticated criminal
enterprises. But they totally flaunt the law. Their arrogance
is stunning.
Let me close by saying what other Members have said, and
Attorney General Holder I know is concerned about this issue
and is addressing it. But we imprison more young Black men
between the ages of 20 and 34 in this country than South Africa
under apartheid, which was considered a very regressive regime
against our black citizens and actually racist. And it is a
national tragedy. It really is. And when the Bureau of Prisons
says we are manufacturing prisoners, not reforming them,
manufacturing criminals.
Violence has dropped since 1980 by a third. In 1980 if you
looked at the racial makeup of our Federal prisons there was
very little demographic variant. Since 1980 suddenly young
Black men, if you were to look at the statistics, have suddenly
turned into hardened criminals. And I don't think that is the
case. And a lot of it is the crack cocaine differential and we
have moved against that.
But I think we have a lot of work yet to be done. And even
in certain regulations I think we are overcriminalizing, taking
regulations that should be civil penalties. And I know you
mentioned there are some that shouldn't and have to be careful.
I am on a task force, in fact I was at the Supreme Court
last night with the new members of the Sentencing Commission
were being sworn in, and the Justices there know there is a
real problem, they are looking for the Congress. I talked to
two of the Justices.
There is a bipartisan realization in the House and Senate
that it is a very broken system. And I think it is a civil
rights and a human rights issue and that it is not your
Department. But it is, I think, one of the real human rights
issues of our age.
I actually know one Federal judge, a lady, whose husband,
because of the story she tells him, goes to the Federal
penitentiary in Alabama and visits prisoners every Monday. And
I encourage the Administration to speak out on this.
The American people don't understand it. I think they just
say, well, you know let's--but these are not violent criminals
or if they are, we have turned them into that by ago taking a
young 19-year-old who might have been a mule. A lot of these
people their mental capacity, they are actually retarded, and
they have been taken advantage of. And they are not, once they
come out of prison, sometimes their chances of advancing have
pretty much, in many cases, dissipated.
I think it is, and I have talked to Senator Leahy, the
Senate is going to move legislation, and it is going to come
over to the House. And it is going to have Rand Paul, Mike Lee,
Barbara Mikulski. And how do you get people on opposite ends?
And here, Mr. Cohen and I and Chairman Goodlatte, we are all
committed, Raul Labrador. This is something that we need to
address. And I know that Governor Perry in Texas has talked
about need for change.
So I don't think anything else we have discussed today
affects as many people so dramatically. China has four and a
half times more population, I think, than we are. We have more
people in prison than China. We are giving the longest
sentences today in the history of our country.
So that concludes our hearing. Thank you very much.
This is just for the record. You all can go ahead. This
concludes today's hearing. Thanks to all our witnesses for
attending. Without objection, all Members will have 5
legislative days to submit additional written questions for the
witnesses or additional materials for the record.
This hearing is adjourned.
[Whereupon, at 10:54 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Prepared Statement of the Honorable Steve Cohen, a Representative in
Congress from the State of Tennessee, and Ranking Member, Subcommittee
on Regulatory Reform, Commercial and Antitrust Law
The U.S. Supreme Court has referred to the federal antitrust laws
as ``the Magna Carta of free enterprise,'' declaring them ``a
comprehensive charter of economic liberty aimed at preserving free and
unfettered competition.''
Effective antitrust enforcement is key to ensuring a vibrant,
competitive marketplace that rewards innovation and creativity and
offers consumers greater choice and lower prices. In the absence of
antitrust enforcement, companies have less incentive to compete, and
more incentive to maintain high profit margins at the expense of
consumer welfare.
At the forefront of the effort to ensure that competition remains
free and fair are the Nation's principal antitrust enforcement
agencies, the Antitrust Division of the Department of Justice and the
Federal Trade Commission's Bureau of Competition.
I applaud both agencies for their vigorous efforts to enforce
federal antitrust laws in recent years. For example, the Justice
Department won a total victory against Apple and stopped it from
conspiring with publishers to raise prices for consumers. Thanks to the
Department's work, consumers will enjoy e-books that are 40% cheaper
than they might have been.
The Department has also successfully obtained criminal fines of
more than $1 billion and obtained prison sentences for 28 people for
criminal antitrust violations, which are the most harmful types of
anti-competitive behavior like price-fixing and bid-rigging.
Similarly, the FTC has had a number of notable successes on behalf
of consumers, including its victory before the Supreme Court in FTC v.
Actavis, which found so-called pay-for-delay agreements to be subject
to the antitrust laws.
Meanwhile, both agencies have established the principle that
holders of standard essential patents may not seek to exclude
competitors who rely on the standard technology covered by such patents
and must license such technology on reasonable and non-discriminatory
terms.
My constituents are all too aware of the consequences of lax
antitrust enforcement. As I noted back in February, the merger of Delta
Airlines and Northwest Airlines has been nothing short of disastrous
for Memphis.
Richard Anderson, Delta's CEO, promised me in this very room back
in 2008 that there would be ``no hub closures'' and that the merged
airline would maintain the international flight to Amsterdam. At a
meeting in Memphis, he pledged to city leadership that the Northwest/
Delta merger would be one of addition, not subtraction.
Since then, there has been a string of broken promises. Delta cut
the international flight, repeatedly cut service to Memphis and, this
year, closed its Memphis hub. Service has been cut from 240 flights a
day to 40.
The result was that my constituents were hurt, with a substantial
loss of air service and jobs, which ultimately harms Memphis's
competitiveness as a business destination with other cities.
Protecting consumers from antitrust violations is important. In
addition, though, I also hope that Mr. Baer will tell the Attorney
General that we also need to protect individuals from unjust sentences,
as I outlined in a June 18, 2013 letter to the President, for which I
am still awaiting a response.
I look forward to hearing from our witnesses as to what efforts the
antitrust enforcement agencies are currently undertaking to help ensure
free and fair competition in all industries.
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, and Ranking Member, Committee
on the Judiciary
Today's oversight hearing on the Department of Justice's Antitrust
Division and the Federal Trade Commission's Bureau of Competition,
provides an excellent opportunity for us to focus on the critical
purpose of antitrust law: to ensure that businesses do not behave in
ways that injures markets, and, ultimately, consumers.
As to mergers, this means that any transaction that would result in
a company obtaining an unfettered ability to raise prices or otherwise
harm consumers is contrary to basic antitrust policy.
Thus, we should be especially skeptical about the potential
detriment presented by a rapid succession of big mergers in a given
industry.
Unfortunately, antitrust scrutiny of mergers has been woefully
insufficient over the past 30 years until only recently.
The very fact that many industries are now dominated by just a
handful of very large firms attests to this failure of aggressive
scrutiny.
There has been a wave of mergers in industry after industry. Just a
few examples include the Whirlpool-Maytag, AT&T-BellSouth, AOL-Time
Warner, and JPMorganChase-BankOne mergers. In the banking industry
alone there have been 47 mergers since 2001.
Basic economics and common sense should tell us that a few dominant
firms forces consumers to pay higher prices and to accept suboptimal
products or services.
This hands-off approach to antitrust merger enforcement reflects
the misguided view that corporate power should trump other interests,
including the public interest. As a result, the trend in antitrust law
has been against the American consumer.
Fortunately, recent antitrust enforcement initiatives of both the
Justice Department and the Federal Trade Commission appear to reflect a
positive change from prior practice.
I am very heartened by the renewed vigor in antitrust enforcement
that these agencies have exhibited in the past year or so.
Under the Obama Administration, the Justice Department has
aggressively pursued litigation to block large, high-profile, and
potentially anticompetitive mergers, including lawsuits to block the
proposed mergers of AT&T and T-Mobile, Anheuser-Busch InBev and Grupo
Modelo and, most recently, American Airlines and US Airways.
Such actions would, for the most part, have been unexpected in
previous Administrations going back a generation.
Even more important is the fact that these suits have achieved pro-
consumer results.
AT&T and T-Mobile dropped their plans to merge, while Anheuser
Busch agreed to divest itself of all of Grupo Modelo's U.S. business in
response to the DOJ's lawsuit.
The FTC, meanwhile, was able to achieve an important victory for
consumers before the U.S. Supreme Court this year in the FTC v. Actavis
case, which held that agreements between brand-name and generic drug
manufacturers to delay introduction of cheaper generic drugs can be
subject to antitrust laws.
Such successes, however, do not necessarily mean further oversight
is unnecessary. For instance, the Justice Department's tentative
settlement agreement announced earlier this week with respect to the
proposed American Airlines and US Airways presents some concerns.
While this settlement agreement leaves consumers somewhat better
off than they would have been had the merger gone through as proposed,
I remain concerned that the new merged carrier--which would be the
largest in the world--will result in only four domestic airlines
controlling more than 80% of the market.
As the New York Times noted in an editorial yesterday, ``the
agreement simply ignores the central concern the Justice Department
expressed in its lawsuit: the four big airlines--United, Delta,
Southwest and the merged American--will have an even greater incentive
to raise fares and fees because consumers will have fewer choices.''
In closing, I note that strong antitrust enforcement is not
possible without adequate resources.
As with other federal agencies, the DOJ and the FTC must have
sufficient funding to pay for high-caliber attorneys, economists, and
other staff and for vigorous and thorough investigations and, when
necessary, litigation.
The continuing budget battles in Congress, including sequestration
and the recent fight over a continuing resolution that led to the
shutdown of the federal government, threaten to sap already limited
resources for all of our federal agencies.
Some of the recent successes in antitrust enforcement would be
undermined, and future enforcement efforts could be compromised. That
could return us to the bad old days of lax antitrust enforcement, with
higher prices and fewer choices for consumers. I urge my colleagues to
make every effort not to go down that road.
Response to Questions for the Record from the Honorable William J.
Baer, Assistant Attorney General, Antitrust Division, United States
Department of Justice
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Questions for the Record from the Honorable Edith Ramirez,
Chairwoman, Federal Trade Commission
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