[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
HEARING ON THE STANDARD MERGER AND
ACQUISITION REVIEWS THROUGH
EQUAL RULES ACT OF 2014
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
APRIL 3, 2014
__________
Serial No. 113-83
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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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 ZOE LOFGREN, California
SPENCER BACHUS, Alabama SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
SPENCER BACHUS, Alabama, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California HENRY C. ``HANK'' JOHNSON, Jr.,
TOM MARINO, Pennsylvania Georgia
GEORGE HOLDING, North Carolina SUZAN DelBENE, Washington
DOUG COLLINS, Georgia JOE GARCIA, Florida
JASON T. SMITH, Missouri HAKEEM JEFFRIES, New York
DAVID N. CICILLINE, Rhode Island
Daniel Flores, Chief Counsel
C O N T E N T S
----------
APRIL 3, 2014
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 Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Tennessee, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 9
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 10
WITNESSES
Deborah A. Garza, Partner, Covington & Burling LLP
Oral Testimony................................................. 12
Prepared Statement............................................. 15
Abbott B. Lipsky, Jr., Partner, Latham & Watkins LLP
Oral Testimony................................................. 23
Prepared Statement............................................. 25
Richard G. Parker, Partner, O'Melveny & Myers LLP
Oral Testimony................................................. 30
Prepared Statement............................................. 32
John B. Kirkwood, Professor of Law, Associate Dean for Strategic
Planning and Mission, Seattle University School of Law
Oral Testimony................................................. 40
Prepared Statement............................................. 42
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Tennessee,
and Ranking Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law................................... 61
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 62
Letter from Albert A. Foer, President, the American Antitrust
Institute (AAI), submitted by the Honorable Henry C. ``Hank''
Johnson, Jr., a Representative in Congress from the State of
Tennessee, and Ranking Member, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 64
Letter from the Edith Ramirez, Chairwoman, Federal Trade
Commission, submitted by the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 68
Letter from George S. Cary, Partner, Cleary Gottlieb Steen &
Hamilton LLP, former Deputy Director, Bureau of Competition,
Federal Trade Commission, submitted by the Honorable George
Holding, a Representative in Congress from the State of North
Carolina, and Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law................................... 70
Response to Questions for the Record from Deborah A. Garza,
Partner, Covington & Burling LLP............................... 72
Response to Questions for the Record from Abbott B. Lipsky, Jr.,
Partner, Latham & Watkins LLP.................................. 76
Response to Questions for the Record from Richard G. Parker,
Partner, O'Melveny & Myers LLP................................. 78
Response to Questions for the Record from John B. Kirkwood,
Professor of Law, Associate Dean for Strategic Planning and
Mission, Seattle University School of Law...................... 81
HEARING ON THE STANDARD MERGER AND
ACQUISITION REVIEWS THROUGH
EQUAL RULES ACT OF 2014
----------
THURSDAY, APRIL 3, 2014
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:06 p.m., in
room 2237, Rayburn Office Building, the Honorable Spencer
Bachus, (Chairman of the Subcommittee) presiding.
Present: Representatives Bachus, Marino, Holding, Collins,
Johnson, Conyers, and Jeffries.
Staff Present: (Majority), Anthony Grossi, Counsel; Ashley
Lewis, Clerk; (Minority) Slade Bond (Counsel); and Rosalind
Jackson, Professional Staff Member.
Mr. Bachus. Good afternoon. The Subcommittee on Regulatory
Reform, Commercial and Antitrust Law hearing will come to
order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
How many of you all have testified before a congressional
Committee? Okay. What we do, Professor, we have our opening
statements of Members. Then we go to your statements, and then
we have questions for all of you, and I will introduce each of
you all at the appropriate time.
I recognize myself for an opening statement.
Let me welcome everyone to today's hearing, which is on the
discussion draft of legislation. We thank our distinguished
panel of witnesses because their testimony on the language in
this draft will help to inform our further discussions on
Federal antitrust enforcement procedures.
Antitrust enforcement plays an important function in the
fair and efficient operation of our market economy. Two Federal
agencies enforce our nation's antitrust law, the Department of
Justice and the Federal Trade Commission. When a company wishes
to merge with or purchase another company, it notifies both
antitrust enforcement agencies of the proposed transaction. The
agencies then confer and determine which will review the
transaction to ensure that antitrust laws are not violated.
There are no fixed rules to determine which agency will
conduct the review. If the reviewing agency determines that the
proposed transaction violates antitrust law, the agency files a
lawsuit in district court to seek an injunction against the
transaction. Generally speaking, if the court grants the
injunction, the parties abandon the transaction. If the court
denies the injunction, the parties may consummate the
transaction shortly thereafter.
Although the FTC may pursue further internal administrative
proceedings for a merger under its review, the Antitrust
Modernization Act of 2002 created a special commission to
conduct a review of the antitrust laws and the manner in which
DoJ and FTC enforce these laws.
In 2007, this commission published a comprehensive report
that included recommendations for potential reforms to existing
antitrust enforcement practices. Two of these recommendations
were focused on the procedures that agencies follow when they
seek to prevent the consummation of a proposed transaction. The
report found that courts apply different standards to
preliminary injunction requests from DoJ and FTC.
The preliminary injunction standard applied to the FTC is
drawn directly from the Federal Trade Commission Act, while the
standard applied to the Department of Justice is the government
case law standard of the relevant court of appeals. The
Antitrust Modernization Commission also highlighted that the
FTC has the ability to pursue administrative litigation
following a court's denial of its preliminary injunction
request, while DoJ cannot conduct administrative litigation.
The Antitrust Modernization Commission recommended that
Congress enact legislation that would harmonize the preliminary
injunction standard at both the FTC and DoJ and provide that
the agencies have identical authority to prevent a proposed
transaction that is monopolistic or substantially lessens
competition.
Today's hearing will examine the discussion draft of
legislation called the Standard Merger and Acquisition Reviews
Through Equal Rules Act of 2014, or SMARTER Act, that draws
from these recommendations.
There is much today from our witnesses to discuss. I look
forward to the start of testimony.
[Discussion Draft of H.R. ___, the ``Strandard Merger and
Acquisition Reviews Through Equal Rules Act of 2014'' follows:]
__________
Mr. Bachus. At this time, I recognize the Ranking Member,
Mr. Hank Johnson of Georgia, for his opening statement.
Mr. Johnson. Thank you, Mr. Chairman.
Today's hearing is----
Mr. Bachus. Let me say this, and probably you may comment
on this, too. Of course, I think we are all mindful of what
happened at Fort Hood today, and some of us discussed our time
in the Army, and it is obviously a sad day for our country, and
our thoughts and prayers are with our soldiers and their
families.
Mr. Johnson?
Mr. Johnson. Thank you. I stand with you in that regard.
Today's hearing is an important opportunity to consider the
Federal Trade Commission's role in developing and enforcing
antitrust law. When Congress first established the Federal
Trade Commission in 1914, it sought to safeguard consumers
against anticompetitive behavior by breathing new life into
antitrust enforcement. Unlike its predecessor, the Commerce
Department's Bureau of Corporations, Congress specifically
empowered the Commission with adjudicative authority to
enforce, clarify, and develop antitrust law. And unlike
generalist courts of that era, the Commission also had the
mission to study and enunciate the law as an expert tribunal
through its research and information-gathering authority.
A century later, the Commission continues to advance
antitrust law. Under the process for administrative litigation,
also known as Part 3 litigation, the Commission may seek
permanent injunctions in its own administrative court in
addition to its ability to seek preliminary injunctions in
Federal district courts. This additional authority is a unique
mechanism that takes advantage of the Commission's longstanding
expertise to develop some of the most complex issues in
antitrust law. It is critical to the Commission's mission to
promote competition and consumer welfare.
Today, the Subcommittee will consider the Standard Merger
and Acquisition Reviews Through Equal Rules, or the SMARTER,
Act. This bill would create a uniform standard for preliminary
injunctions and eliminate the Commission's century-old
authority to adjudicate the permanent injunctions of mergers,
acquisitions, joint ventures, or similar transactions.
The stated goal of the SMARTER Act to create a uniform
process for merger review between the Federal Trade Commission
and the Department of Justice is not without appeal. I consider
myself a man of strong and unrelenting support for the third
co-equal branch of government, the Federal Judiciary. I
understand the objective of reserving power for the Federal
courts instead of agencies and creating symmetry in antitrust
enforcement. I also understand the concerns associated with
administrative litigation.
But I would point out that these concerns are hardly new
and have existed for decades without serious proof of actual
harm or unfairness. The American Bar Association expressed
concerns with the FTC's twin role as prosecutor and judge in a
landmark report 25 years ago but ultimately concluded that the
benefits of this enforcement regime outweighed these concerns.
Likewise, when the ABA revisited this question 7 years ago,
it continued its support of administrative litigation with an
important exception in those rare cases of the FTC pursuing
administrative litigation after a Federal court denies a
preliminary injunction.
But the prospect of completely eliminating the FTC's
adjudicative authority, a practice that has expertly guided our
nation's antitrust laws for a century, raises serious concerns.
I cannot stand by and support legislation that would dismantle
government and a century of progress under the guise of
symmetrical enforcement. Although I welcome today's hearing, I
sincerely hope that we can find an evenhanded solution that
does not throw the baby out with the bath water. After all, if
we can all agree that anticompetitive mergers pose serious
threats to consumers and to the marketplace, the overriding
goal of this legislation should be to preserve competition.
I thank the Chair for holding this hearing and I yield
back.
Mr. Bachus. I thank the gentleman from Georgia.
At this time, I recognize the Ranking Member of the full
Committee, Mr. Conyers from Michigan, for his opening
statement.
Mr. Conyers. Thank you, Chairman Bachus. I will not take up
the 4 or 5 minutes, but I did want you to know that there are
some reservations that I will be considering as we proceed on
this very important hearing.
What I think we are trying to do is to make the Federal
Trade Commission adhere to the same merger enforcement
procedures as the Justice Department's Antitrust Division. Now,
there are some logical appeals that reach out to me, and there
are some serious concerns about potential detrimental effects
that may occur.
You see, by making the FTC like DoJ, this proposal would
weaken the FTC's independence, which contravenes Congress'
original intent in establishing the Federal Trade Commission in
the first place. And so I need you to work with me on that, and
I invite any comments, particularly from the witnesses, and I
will be holding these discussions with the Chairman and my
colleagues on this very important Committee.
Now, a concern. Eliminating the FTC's ability to conduct
administrative adjudication could harm the FTC's ability to
protect consumers. Administrative adjudication by which the
agency and the merging parties litigate their case in front of
an administrative law judge allows for a less formal
adjudication process before a panel of experts, in contrast to
litigation before a judge, a generalist judge, in a Federal
court.
Moreover, the administrative process allows the testing of
novel theories and the development of expertise in new
industries in a way that a generalist court is less well suited
to handle.
So the smarter approach is with some caution, and I will be
listening carefully to what is said.
Our preeminent goal here should be to strengthen, not
weaken, antitrust enforcement in order to protect consumers,
which is why FTC Chairwoman Ramirez wrote to this Subcommittee
raising concerns about the bill under discussion, pointing out
that it would have far-reaching, immediate effects and could
fundamentally alter the nature and function of the FTC, as well
as the potential for significant and unintended consequences.
So it is with great pleasure that I join in welcoming all
of our distinguished witnesses and look forward to this
hearing, and I ask unanimous consent to put the remainder of my
remarks in the record, including the letter to the Chairman and
the Ranking Member by the chairwoman of the FTC, and I yield
back the balance of my time.
Mr. Bachus. Let me say this; and, of course, I only speak
as the Subcommittee Chair. But I think that we are all
concerned about monopolistic transactions that create
monopolistic entities or that are monopolistic or that
substantially lessen competition, and that is really why we are
having this hearing, to see whether these proposals, how
narrowly they are drawn and whether or not they will have any
effect on that. We obviously are concerned about cartels. You
read about some of those in existence in other countries and in
the history of this country.
So I think we are all cautious about anything that would
create more opportunities for that type of transaction, and I
think that will be something on which our witnesses will build
a record and can address some of those concerns.
Without objection, other Members' opening statements will
be made a part of the record.
We have a very distinguished panel today, and I will first
begin by introducing all our witnesses.
Ms. Garza is Co-Chair of Covington & Burling's Antitrust
and Competition Law Practice Group. Ms. Garza has been involved
in some of the largest antitrust matters in the last 30 years,
including the merger of Exxon and Mobil, the U.S. Government's
suit against Microsoft, the USFL's suit against the NFL, and
many other litigation and regulatory matters on behalf of
Fortune 500 companies.
Before her time at Covington, Ms. Garza served as Acting
Assistant Attorney General in charge of the Antitrust Division
at the Department of Justice. She also served as Deputy
Assistant Attorney General for Regulatory Affairs, Special
Assistant, Chief of Staff, and Counselor to the Assistant
Attorney General in charge of the antitrust Division.
In 2004, she was supported by President George W. Bush to
chair the Antitrust Modernization Commission, or AMC, a
bipartisan blue-ribbon panel created by Congress to study and
report to the President and Congress on the state of antitrust
enforcement in the United States. The Commission's report has
been widely praised for providing a valuable framework for
policy discussions going forward.
Ms. Garza received her Bachelor's degree from Northern
Illinois University and her J.D. from the University of
Chicago.
We welcome you, Ms. Garza.
Mr. Lipsky is a partner in the Washington, D.C. office of
Latham & Watkins. He is internationally recognized for his work
on both U.S. and non-U.S. competition law and policy, and has
handled antitrust matters throughout the world. Before Lathan &
Watkins, Mr. Lipsky served as Chief Antitrust lawyer for the
Coca-Cola Company from 1992 to 2002. He has been closely
associated with efforts to streamline antitrust enforcement
around the world, advocating a reduction of compliance burdens
and the harmonization of fundamental objectives of antitrust
law.
From 1981 through 1983, Mr. Lipsky served as Deputy
Assistant Attorney General under William F. Baxter, who sparked
profound antitrust law changes while serving as President
Reagan's chief antitrust official. In that position, Mr. Lipsky
supervised Supreme Court litigation in a series of ground-
breaking antitrust cases and played a fundamental role in
developing DoJ's merger guidelines.
Mr. Lipsky received his Bachelor's degree from Amherst
College, his Master's from Stanford University, and his J.D.
from Stanford Law School.
We welcome you, Mr. Lipsky.
Mr. Parker is in the Washington, D.C. office of O'Melveny
and Myers and the chair of the firm's antitrust and competition
practice. He has extensive experience in antitrust matters both
before the enforcement agencies and in the courts. Mr. Parker
has been recognized as a leading antitrust lawyer by many
publications, including Chambers USA, which noted that he is
acknowledged by all corners of the market as a tremendous
antitrust lawyer who can both litigate and handle deals.
Prior to O'Melveny and Myers or his tenure there, Mr.
Parker spent 3 years at the Federal Trade Commission as
Director for the Bureau of Competition and received the
Distinguished Service Award from the chairman of the FTC upon
his departure.
Mr. Parker received his Bachelor's degree summa cum laude
from the University of California at Davis and his J.D. from
the University of California at Los Angeles or, I guess, UCLA.
We welcome you.
Our final witness, Professor Kirkwood, is Professor of Law
and Associate Dean for Strategic Planning and Mission at
Seattle University School of Law. He is also a Senior Fellow of
the American Antitrust Institute. Following his graduation from
law school, Professor Kirkwood directed antitrust policy
offices in the Premerger Notification Program at the FTC. He
managed antitrust cases and investigations at the FTC Seattle
office and presently consults on antitrust matters. He has
received the Outstanding Faculty Award and the Dean's Medal
from Seattle University.
Professor Kirkwood received his Bachelor's degree magna cum
laude from Yale University, his Master's in Public Policy cum
laude from the Kennedy School of Harvard University, and his
J.D. cum laude from Harvard Law School.
So you are an Ivy League man, right? So, we welcome you,
Professor.
And we welcome all our witnesses.
Each of the witnesses' written testimony will be entered
into the record in its entirety.
I ask that each of the witnesses summarize his or her
testimony in the 5 minutes allotted. I will say this, we will
turn on a light, but if you go 6 minutes, 6-and-a-half minutes,
at least in this Subcommittee, nobody is going to stop you
because we are more interested in you making a coherent
statement than we are in yellow and red lights.
So we will start, Ms. Garza, with your testimony.
TESTIMONY OF DEBORAH A. GARZA, PARTNER,
COVINGTON & BURLING LLP
Ms. Garza. So, you want me to turn the mic on, and you
would like a coherent statement.
Mr. Bachus. Coherent. Really, if it is 7 or 8 minutes, I
don't mind.
Ms. Garza. You keep making it longer, and I was going for 2
or 3, but we will do it.
So, Chairman Bachus, Ranking Member Johnson, and Members of
the Subcommittee, thank you very much for the opportunity to
appear before you today to provide views on the proposed
SMARTER Act.
In May 2007, Representative Conyers, I remember that you
were there. You might remember me. In May 2007, I testified
before the Judiciary Committee's Antitrust Task Force as former
Chair of the Antitrust Modernization Commission regarding the
AMC's report and recommendations. Three of those
recommendations actually read on the types of issues that you
are considering here today. Each of the three recommendations
were bipartisan.
I want to make the point that in my view, this is not a
partisan issue, not a DoJ versus FTC issue, not really even an
enforcement, pro-enforcement versus anti-enforcement, issue. It
really is, I think, in our view at the time with the AMC, a
good government issue, and I do think it is important for you
to be considering it now even though it has taken 7 years. I
have been very patient. It is important to consider it now
because we do have an issue, frankly, around the world with due
process. Right now we have an issue with other jurisdictions
and the way that they are enforcing their antitrust laws.
So I think it is important, at the same time that the U.S.
Government is out talking to other jurisdictions about the way
that they enforce their antitrust laws, that we at least take
the time to examine our own processes to make sure that they
are fair and equal and perceived as being fair and equal. So I
thank you for taking this opportunity to make a review of the
way that the FTC and the DoJ handle HSR mergers.
One of the recommendations of the AMC called specifically
for legislation like the SMARTER Act--that is a great name, by
the way--to equalize merger enforcement authority of the U.S.
Federal Trade Commission and the U.S. Justice Department under
the Hart-Scott-Rodino Act. I will say that the AMC's
recommendation was narrowly and specifically focused on the
issue of mergers that are notified under the Hart-Scott-Rodino
Act.
The premise of SMARTER and the recommendation by the AMC
was quite simple. A merger should not be treated differently
depending on which antitrust enforcement agency happens to
review it. Regulatory outcome should not be determined by the
flip of an agency merger coin, wise legislation needed or
appropriate the AMC thought at the time and I think now. It is
appropriate precisely to maintain consensus about a strong
antitrust enforcement regime. A perception of unequal or unfair
treatment I think undermines that consensus.
As the AMC explained at the time, parties to a 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 efficiently and fairly.
I won't repeat much more of what is in my testimony, but I
will add to you that it is very easy for companies to
understand that certain of their transactions will have to be
reviewed by the government, and it is easy for them to
understand that they will eventually, if necessary, get their
day in court. It is much more difficult for them to understand
that how they will be treated and how their transaction will
fare may depend on whether the Federal Trade Commission looks
at their transaction or the Justice Department. And it is very
hard to explain to a company that is before the FTC why it is
that they won't get that same day in court, necessarily.
As other people will testify, and as we indicated in the
AMC report and, Chairman Bachus, you mentioned, it can be very
difficult to hold a transaction together for the length of time
that it takes to go through a full proceeding, from a
preliminary injunction action in court all the way through to
an administrative hearing, review by the Commission, and then
finally review by a court.
So the idea, I think, is not to prevent either agency from
being able to fully consider a transaction. It is really to
make sure that every company feels that it has its day in
court. We didn't see it at the time, and I don't see it now, as
disadvantaging or handicapping the Federal Trade Commission.
The Justice Department wins cases and wins case challenges to
HSR mergers. The FTC just won a challenge in a merger out in
Idaho. The agencies do win cases when they have the evidence to
support their cases. So this is not about tilting the deck to
make sure that mergers that shouldn't go through, go through.
It is simply about making the process fair and equal and
understandable.
Thank you.
[The prepared statement of Ms. Garza follows:]
__________
Mr. Bachus. Thank you very much.
Mr. Lipsky?
TESTIMONY OF ABBOTT B. LIPSKY, JR.,
PARTNER, LATHAM & WATKINS LLP
Mr. Lipsky. I also want to express my thanks to the
Chairman and the Ranking Member and all the Members of the
Subcommittee who have taken time out of their busy schedule to
appear today, and also thank you for your strong statements in
support of free markets and antitrust laws as a way to preserve
free markets and keep the American economy growing and going.
I am going to be summarizing my statement very briefly and
focusing more on the question of administrative litigation as
opposed to the injunction standard, which I understand my
colleague, Rich Parker, is going to address in some
considerable detail.
The first point I want to make is that the basic thrust of
the bill in removing administrative litigation at the FTC as an
option for cases where the FTC has failed to win an injunction
in court is pretty much what the situation is today. When
President Clinton appointed Professor Bob Pitofsky, an
extremely distinguished antitrust scholar and practitioner, to
be chairman of the FTC back in the 1990's, one of the very
first things he did was to have the FTC issue a statement and
establish as policy that, in general, the Commission would
always reconsider whether administrative litigation was
appropriate to carry forward if the Commission lost the merger
case in court. And in practice, the way that has worked out is
exactly the way that the FTC merger cases would work out under
this bill, because as far as I am aware, no case in which the
FTC had lost an injunction suit was carried forward in
administrative litigation. I was able to find two cases where
the Commission, having lost a couple of cases in court, the
Refining case, Western Refining, and a couple of other cases,
declined to carry forward an administrative litigation.
I believe that Chairman Pitofsky was right in persuading
the Commission to adopt that policy because the Commission had
I think justly been criticized for conducting very extensive
litigation, administrative litigation, following court losses
under circumstances where it was very difficult to argue that
the public interest had been served.
In the one case, even though the Commission had won in
court and the target of the acquisition had been sold to other
interests and had been disposed of in other ways, the
Commission continued that litigation for 9 years. Eventually
that litigation was settled under Chairman Pitofsky, who
settled I think on relatively lenient terms, and justly so.
And the other case, and perhaps the leading example is the
R.R. Donnelley case, where the Commission lost its case in
court, persisted in administrative litigation for 5 years, only
to conclude that the transaction, the merger was lawful. So
essentially, that administrative litigation had continued to
really no good effect.
I think that the Committee is right, even those who
expressed some reservation about this approach. They are right
to be concerned about the unique tools available to the
Commission and the unique role that the Commission has in
forwarding antitrust doctrine. But I don't think the ability to
conduct administrative litigation in a merger case where the
Commission was unsuccessful in court has much to do with
preserving that uniqueness.
The FTC has many unique elements that Congress put into the
original legislation and enacted since, the so-called 6(b)
authority to conduct industry investigations, which is now
being used to examine the whole issue of patent controls. The
Commission under Chairman Ramirez was extremely constructive in
bringing harmony to the whole idea of how the antitrust laws
apply to horizontal restraints, which culminated in the so-
called Three Tenors decision and which has been followed in a
number of other circuits. It was a very valuable contribution
to a very uncertain area of the law.
I don't think that this one modest reform to prevent the
kinds of delay and expense that occurred in the cases that I
alluded to earlier will at all harm or diminish the
Commission's ability to do good and to advance antitrust law.
Finally, I see that I am heading to the end of my time, but
I wanted to ask you to consider one other dimension which is
addressed in the last paragraph of my testimony. The last time
I appeared before this Committee it was actually a hearing
Chaired by Mr. Johnson, who conducted a very interesting
proceeding on the subject of how the new Chinese anti-monopoly
law was influencing American business, and a number of concerns
were expressed. I think there was some cautious optimism, but
there was also concern that the Chinese antitrust law might be
enforced in a way that would obstruct American business or be
uncertain or unduly burdensome.
Today we have a situation where Chinese anti-monopoly law
approval for mergers is usually the slowest boat in the merger
notification convoy. In 1976, the U.S. was the very first
country to have mandatory premerger notification. We now have
over 80 jurisdictions around the world. They all look to the
United States as a model for how to enforce antitrust law. And
given that the burden and expense and complexity of complying
with the antitrust laws in 100 jurisdictions around the world
is so much greater than it was formerly, I think it behooves us
to exercise leadership.
The United States should exercise leadership and make sure
that its processes are rational and as efficient as possible,
and everything we do in the antitrust sphere is echoed in those
other 100 jurisdictions, and that is why we should constantly
reconsider whether we should really be required to conduct
these kinds of proceedings. That is why I favor the thrust of
the bill.
Thank you very much.
[The prepared statement of Mr. Lipsky follows:]
__________
Mr. Bachus. Thank you, Mr. Lipsky.
Mr. Parker?
TESTIMONY OF RICHARD G. PARKER,
PARTNER, O'MELVENY & MYERS LLP
Mr. Parker. Mr. Chairman, Mr. Ranking Member, thank you.
Is it on?
Mr. Bachus. I am not sure. Is it working?
Mr. Parker. I want to thank you for the opportunity to
express my views to the Committee. I have personally tried
merger cases in Federal court both for the FTC and against the
FTC, won some, lost some.
And so I bring--I don't think mine is working. All right. I
will just talk with it right here. Can you hear me better? All
right. Thank you.
As I have said, I have tried these for both sides, and I
hope I can bring some practical advice here and suggestions to
the Committee.
I have heard the comments of particularly Mr. Johnson and
Mr. Conyers talking about the importance of administrative
litigation, and I believe you touched it also, Mr. Chairman,
and I totally agree with that. I agree that administrative
litigation is a very good way to deal with monopolization
issues, with conduct issues, for the simple reason that you
have an expert agency and you can get six or 7 weeks for a
trial to really build a record and look at something.
I am in Federal court every day, and if I said to the
Federal judges I am in front of ``I need six or 7 weeks to try
this case,'' they would say ``Mr. Parker, you have one,''
because they are doing immigration cases and criminal cases and
everything else. So that is very important.
My point here is that I do not believe the administrative
process works in a narrow area in Hart-Scott-Rodino merger
review. I don't believe that it is practical, and let me just
take you through two examples.
I was privileged to represent the airlines in the DoJ
versus U.S. Airways-American Airlines case. I was the lead
counsel for the defense there, okay? And so we were sued in the
middle of August. We went to the DoJ and said we really don't
need a preliminary injunction. We will agree to that, but we
want an early trial date. We got a trial date in November, 4
months. The trial would have been over before Christmas, and
the judge, Judge Colleen Kollar-Kotelly--who is an outstanding
judge, by the way--committed to rule by the middle of January.
We would have had our day in court as the airlines, and a
ruling, within 5 months. That works. Now, this case settled a
week or two before trial, so we never got to trial, but that is
a procedure that works.
Now, I was also in a case called FTC v. CCC/Mitchell, and
that was one that we went to court on, and I will tell you
painfully that I lost that case, but I am over it, I am over
it. And here is the situation. We got sued sometime in
November. It was a preliminary injunction. But we couldn't
collapse that with a permanent injunction because the permanent
injunction was going to be held administratively. So we went to
court only on a preliminary injunction in January, and we tried
that case for about 2 weeks, and the judge ruled in March, and
we lost.
Well, okay, let's go to the administrative proceeding. It
would have taken us 8 or 9 or 10 months to get a ruling, and
then to go to the Court of Appeals for another year. We had
financers, we had banks, we had investment bankers you can't
hold together. That is the problem. So our only day in court
was that preliminary injunction day. That was it. That was the
whole deal. Up or down, that is it.
The other problem was that the district judge--and she is
an outstanding district judge, Rosemary Collyer. She is superb.
They have a lot of good judges in this town. But she
interpreted the Whole Foods decision reasonably as setting
forth a lower standard for the FTC.
So in the airlines case, we would have gotten a full-blown
trial under Section 7 and done it in 6 months, and here the
only day we had in court, the only day, was under a preliminary
injunction standard that is more reduced from the standard
equitable test that we learned in law school.
All I am suggesting is--and the FTC, this is not going to
affect the FTC's role. I know these people, and they are very
good trial lawyers. They can go to court, and they can stand up
against the best of them, and they do not need any special rule
in the preliminary injunction, and they ought to do the exact
same thing that the Department of Justice does, and I will tell
you, they will win most of their cases, painfully, because I am
on the other side. But that is what I believe. So I think this
is an intelligent procedure.
My other point is this. You try to explain to a chief
executive officer why, if he had a DoJ-regulated industry, he
would have a better time in court than an FTC case, and you
will get--you could imagine how hard it is to explain that, and
we just have to eliminate that because it serves no purpose. It
only creates unfairness, and it does not affect the mission of
the FTC one iota because they can stand up in Federal court as
well as the DoJ can and will win most of their cases.
I would be happy at the appropriate time to entertain any
questions you might have.
[The prepared statement of Mr. Parker follows:]
__________
Mr. Bachus. Thank you.
Professor Kirkwood?
TESTIMONY OF JOHN B. KIRKWOOD, PROFESSOR OF LAW, ASSOCIATE DEAN
FOR STRATEGIC PLANNING AND MISSION, SEATTLE UNIVERSITY SCHOOL
OF LAW
Mr. Kirkwood. Thank you very much, Mr. Chairman and Ranking
Member, and the other Members of the Subcommittee, for inviting
me here.
This draft bill proposes to equalize the powers of the FTC
and the DoJ in merger challenges through two principal methods.
The first is to equalize the standards for granting a
preliminary injunction. As my co-members of this group of
testifiers have indicated, there is a substantial case, in
general, for having the same preliminary injunction standard.
The agencies divide which merger cases they look at based on
industry expertise, and there is no justification for giving
the FTC an easier ability to challenge mergers in industries
where the FTC has expertise rather than where the Justice
Department has expertise. So as a general matter, equalizing
the preliminary injunction standards does make a lot of sense.
I see a couple of possible objections. One is that the
existing preliminary injunction standard is in 13(b) of the FTC
Act, and that also governs the Commission's authority to obtain
preliminary injunction in other FTC cases. And by changing the
standard for mergers, you wouldn't want to change the standard
for other cases. Now, maybe that can be handled by very careful
drafting, by precise and clear legislative history, but it is
an issue that the Commission will raise and needs to be
considered.
The other objection is more substantial. In some merger
cases, there may be a need for a relaxed preliminary injunction
standard and administrative litigation. In a non-routine merger
case, in a case where, say, the FTC doesn't have a great deal
of expertise in a particular industry or where the industry is
changing rapidly and so a more sustained look is necessary to
determine whether or not the merger will create market power or
lessen competition, there may well be a reason to give the FTC
the opportunity to look in more depth to give it a more relaxed
standard and the ability to use sustained administrative
litigation. Maybe.
Now, it may be difficult to separate those cases out from
the standard kinds of cases that Rich litigates. So it may be
that this is simply a cost of equalizing the standards, but it
is a potential cost of certain cases that wouldn't be heard.
The second method the discussion draft uses is to
completely eliminate administrative adjudication in merger
cases. The strongest justification is the one that Tad gave
you, that if the FTC has lost in court, both at the district
court level and at the appellate court level, what sense does
it make to allow them to engage in administrative litigation
too? It may not make any sense. In fact, since the 1995 policy
statement, my understanding is the FTC has never taken a case
through administrative litigation after it lost in the Federal
courts, and Tad is nodding.
But there is the kind of case I mentioned, the non-routine
merger case where the FTC hasn't lost. And more important,
there are consummated mergers where the FTC isn't seeking a
preliminary injunction at all but is seeking to undo a
transaction that has already occurred, and there, there may be
benefit for administrative litigation.
The FTC showed this benefit in the hospital merger area.
That is perhaps the strongest example of the constructive pro-
consumer use of administrative litigation. Both agencies,
Justice and FTC, had been unsuccessful in a series of hospital
merger challenges. They lost something like six in a row. And
the FTC decided to take a careful look at both the economic
studies and health care analysis of this area and determined
that there was a consummated merger near Chicago that had
resulted in higher prices. They challenged that merger in
administrative litigation and, in an extensive and thoughtful
opinion, held it to be anticompetitive.
The result of that effort was to make it easier in future
cases to challenge them in court. If the FTC had been unable to
do that kind of administrative litigation, that result might
not have occurred, and the ability to keep health care costs
down might have been lost.
So there is real value in administrative litigation, at
least in some contexts. And, as Mr. Johnson and Mr. Conyers
have already mentioned, if you take the FTC's administrative
litigation power away, you are taking a step toward ending dual
enforcement.
Thank you.
[The prepared statement of Mr. Kirkwood follows:]
__________
Mr. Bachus. I appreciate all the testimony. Obviously, we
have three witnesses that make a strong case in favor of the
law, and I think, Professor, you don't believe that it would be
a good change, or you believe it would have some good, some
bad. Is that correct?
Mr. Kirkwood. I think it is correct that, at least as a
general matter, equalizing the preliminary injunction standards
does make sense, the first part of the legislation, but that
part can be handled simply by adjusting the preliminary
injunction standard in Section 13(b), equalizing it to the
standard the Justice Department has to meet. I raised a couple
of possible objections to that, but on balance, it is probably
a good idea.
Mr. Bachus. The legislation?
Mr. Kirkwood. The second part of the legislation, the part
that would remove from the Commission's Section 5 authority its
ability to challenge mergers through the administrative
process, that is much more questionable.
Mr. Bachus. Thank you.
You know, I was sitting here listening to testimony, and I
have to sort of go--I represented railroads. When you go to my
office, you see trains all over my office. And some of what Mr.
Lipsky and Mr. Parker were saying recalled to me the history of
the Rock Island Railroad, which was really the biggest disaster
of the 20th century and railroading where some 12,000 miles of
rail was abandoned, and many businesses that depended on that
railroad went out of business, and it was all unavoidable. It
was the result of 10 years, from 1964 to 1974, of
administrative proceedings, which finally approved in 1974 the
proposal that was made in 1964. But by that time, the Union
Pacific Railroad had made other plans and they didn't go
forward with the merger. So for another 6 years you had
derailments, you had interruptions in services, and finally in
1980 several thousand employees lost their jobs and we lost
some important competition in the rail industry, and it was as
a result of administrative decisions.
I sort of come with that. People have actually said that
that weakened the entire industry across the country. It
discouraged mergers, abandonments of unproductive rail lines,
and led to really somewhat of a deterioration in rail all over
the country, which then resulted in New York Central-
Pennsylvania merger to try to stave off that. But by then it
was too late and we really had a disaster in railroads until we
moved to really more unregulating parts of the railroad
industry. Today it has finally recovered.
I almost think about the idea of double jeopardy. Of
course, we apply that in criminal cases. But you go to court,
you have your day in court. In civil cases, that is the Seventh
Amendment. And then you have to start all over again. Somehow,
that just doesn't seem to square with your ideas of taking your
case to court, having your day in court, and litigating for
some months at a time, highly skilled people on both sides,
capable judges, and then having to start all over.
You mentioned the American Airlines. I think had that drug
on for two or 3 years, with American Airlines in the shape they
were in, I am not sure that it would have survived. I think you
would have had kind of a repeat of what you saw with the Rock
Island or some of these other mergers. People just finally give
up, because that airline was--it would have strengthened both
of them, and ultimately, I think, it will increase competition.
That is the usual.
But I do want to say in closing I think you have all
expressed--and let me say this. There is no one on this
Committee that does not appreciate the need for strong
antitrust enforcement and the need to guard against monopolies,
cartels, or behavior that lessens competition. But often, in
disapproving transactions, you actually reduce competition.
That may not sound natural, but it often does.
And in looking at this legislation, I would say to my
colleagues, the former Chairman and Ranking Member of the
Subcommittee, that I have great respect for both of you, but I
think maybe you are construing this in your opening statements
that there is a much broader sweep to this bill. I think it is
not nearly as comprehensive in making changes as you think it
is.
So, with that, I will yield to the Ranking Member.
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Bachus. I usually have questions. That is probably the
first time I hadn't. But I think all my questions were answered
by the testimony.
Mr. Johnson. Thank you.
Ms. Garza, in a 1989 report on the role of the Federal
Trade Commission, the American Bar Association's Antitrust Law
Section recognized that merger enforcement was probably the
FTC's most important antitrust role. Do you agree with that ABA
assessment?
Ms. Garza. I don't know if it is the most important. It
certainly is one of the important roles that the Federal Trade
Commission has today, to review mergers. I think the Federal
Trade Commission has a number of important roles. They have a
uniquely important role in looking at antitrust and helping to
develop antitrust policy in other ways. They have a uniquely
important role, as Tad Lipsky explained, and I think Rich
Parker, with respect to conduct cases, to take a deeper look,
and to do it through their administrative hearing process. They
have a very important role to play in the way they use their
6(b) authority to look at industries and look at issues like
patent assertion entities and really bring some light to
issues.
So I think it has a lot of important roles. Some of them
are unique. Those are the ones that are unique, and those are
the ones that I think their administrative proceedings and
their special hearing tools can help with. On the merger side,
obviously, they share that with the Justice Department. It is
also important. My testimony and the AMC report wasn't based on
any understanding that that was an unimportant part of what
their agenda is.
Mr. Johnson. You would agree, though, that it is a----
Ms. Garza. It is important.
Mr. Johnson. It is an important----
Ms. Garza. I agree it is important.
Mr. Bachus. George, for a minute, would you step back in
for a second? I want to recognize two of our former staff
members that are in the audience that I think have given a
great deal of service to the country and to this Committee that
are here, George Slover, who is our former parliamentarian, and
Will Moschella. Would you raise your hand a little? Who have
also given us technical assistance on this because of their
expertise in dealing with these matters before.
I meant to introduce you when I introduced the panel, but I
wanted to acknowledge your years of service and your continued
importance to this Committee. So, thank you.
It is very important that we have resources of stored
knowledge and experience, and we appreciate both of you all
making yourselves available to the Committee from time to time.
So, with that, I will come back to you without a loss of
time.
Mr. Johnson. Thank you, thank you.
Mr. Bachus. And I will even let you mention the Koch
brothers.
Mr. Johnson. Well, since I am talking to Mr. Lipsky, I was
not going to ask him about the Koch brothers, but he did talk
about free markets, which is something that the Koch brothers
stand for, which many of us do also. But the question is, what
is the extent of government involvement in those free markets?
But I would ask you, Mr. Lipsky, do you agree that merger
enforcement is probably the FTC's most important antitrust
role? And before you answer, if you could maybe give me a yes
or no.
Mr. Lipsky. No.
Mr. Johnson. You do not.
Mr. Lipsky. Because I would adopt Deb Garza's answer to
that question, that it is an extremely important function. But
I mentioned, for example, the development of the policy toward
horizontal restraint, which had been a huge puzzle that had
flummoxed antitrust lawyers and judges and the agencies
themselves for decades, and I think through their case
selection and the way they articulated the legal standard in
this Three Tenors case that I mentioned--I think the technical
name of the case is In re Polygram Holdings--but they did a
tremendous service to antitrust in clarifying the law and
making it easier to comply.
So I can't agree that merger enforcement is the most
important. I think it is very important, but it is not the most
important.
Mr. Johnson. Okay. Do you agree also, Mr. Parker? Because I
have a follow-up. I know that you all know it is coming, but I
am going to run out of time, so don't filibuster me.
Mr. Parker. The answer is yes, sir, I totally agree with
you.
Mr. Johnson. All right. And Professor Kirkwood?
Mr. Kirkwood. I am not sure it is the most important. It is
clearly major.
Mr. Johnson. Okay.
Mr. Kirkwood. Clearly a major responsibility, but they have
done substantial other things.
Mr. Johnson. Do you, Professor Kirkwood, agree that this
bill would create a slippery slope to ending joint enforcement
of antitrust law by both FTC and DoJ because it eliminates FTC
authority to adjudicate permanent injunctions of mergers,
acquisitions, and the like?
Mr. Kirkwood. It would take a step down the slippery slope,
yes, because it----
Mr. Johnson. Okay.
Mr. Parker, yes or no?
Mr. Parker. No.
Mr. Johnson. Okay, it does not take us down.
Mr. Parker. If I thought that this was going to eliminate
dual enforcement, I would not be in favor of the legislation.
This is very narrow in one area where I think the FTC can play
its role.
Mr. Johnson. I got you, I got you, in the Hart-Scott-Rodino
cases.
Mr. Parker. Yes.
Mr. Johnson. It is a narrow area, as you see it?
Mr. Parker. It is an important area. For the FTC, it is a
very important area. When I was there, it was the merger wave,
and it most certainly was the most important area, but it can
be performed very well in Federal court, in my opinion. That is
what I said.
Mr. Johnson. Okay. What do you think about the second
objection that Professor Kirkwood enunciated, say, a merger in
an area that the FTC may not have the kind of expertise to meet
a higher standard and may need a lesser standard just to take
the opportunity to study and marinate, if you will, on the
ramifications of the merger? You don't see that as a legitimate
objection?
Mr. Parker. No, sir. I believe the FTC can handle any
merger on the face of the earth.
Mr. Johnson. Okay. And, Mr. Lipsky, being the free market
proponent, I would assume that you would agree with Mr. Parker.
And also, Ms. Garza, you yourself probably agree with Mr.
Parker as well.
Ms. Garza. I do, sir.
Mr. Lipsky. Absolutely.
Mr. Bachus. Okay. Thank you.
I think maybe just for clarification, you said merger
enforcement. Of course, you are talking about enforcing the
monopolistic or antitrust provisions, which may in some cases
be approving mergers. It may be in other cases to deny. But
merger enforcement doesn't always mean stopping mergers.
Mr. Johnson. Well, but if you don't stop it before it
happens, then you lose the ability to stop it.
Mr. Bachus. At this time, Mr. Marino is recognized for 5
minutes, the gentleman from Pennsylvania, or Mr. Holding,
whoever wants to go first.
Mr. Marino. Good afternoon, folks. Thanks for being here.
Let's get right to the point.
I have a special place in my heart for the Department of
Justice. I worked there as a United States Attorney and a
prosecutor in my state before that. So I have the utmost
confidence in DoJ. By the same token, I have the utmost
confidence in the people at the Federal Trade Commission, all
extremely cream-of-the-crop individuals I refer to them as.
But, Professor Kirkwood, if you would be so kind to explain
to me why you think, given our judicial system the way it is,
civil and criminal, why someone should have a second bite at
the apple if they don't like the way the first ruling went.
Mr. Kirkwood. I think that if the FTC loses in district
court and loses on appeal as well, it would be a rare case, if
ever, where they should get a second bite. So I think I agree
with where you are coming from. In fact, as we discussed here,
since the FTC's policy statement in 1995, they have never taken
a merger case to administrative litigation after losing in
Federal court.
Mr. Marino. Okay. I am going to use your slippery slope
argument, then, to counter that. What if? You say, well, you
will have the beginning of a slippery slope, and what is next?
It doesn't mean that the FTC would not in the future take that
case to another level. And why have the two standards?
Mr. Kirkwood. I think I am much more in sync with where you
are coming from. There are possible objections. But in general,
there should be a single standard, and you can make that change
without eliminating the FTC's administrative adjudication
power. You can simply say that when either agency seeks a
preliminary injunction, they have to show a reasonable
likelihood of success.
Mr. Marino. Right.
Mr. Kirkwood. That could be handled.
If you are worried that the FTC might sometime attempt to
take a second bite at the apple, you could prohibit that
without removing the FTC's power to do administrative
adjudication in mergers. There are consummated mergers, and
there might be these kind that Rich and Tad have just denied.
There might be these novel ones where the FTC needs to look
more carefully.
Mr. Marino. What does the administrative procedure through
the FTC have over the traditional judicial system?
Mr. Kirkwood. That goes to the reason that the Congress
created a bipartisan administrative body that is committed to
developing competition law and develops expertise in it, as
opposed to a district court judge who, on the one hand, may be
excellent at antitrust but, on the other hand, may not have
seen it before.
So the FTC's administrative role makes more sense in the
more challenging kinds of cases.
Mr. Marino. Well, then why wouldn't you--I am sorry. Go
ahead, sir.
Mr. Kirkwood. As in the hospital merger case, as in the
pay-for-delay settlement cases.
Mr. Marino. Then why don't we--let's get back to the
traditional judicial system with Federal judges. Why do we not,
then, divide Federal judges up? Why don't we have judges that
just hear criminal cases? And let's even go a step or two
further than that. Why do we not have judges that hear capital
murder cases as opposed to judges that hear sexual abuse cases
or pornography cases? And let's flip over to the civil side of
the issues as well. There could be a myriad of areas where we
could put judges into specialties. But that is my concern, a
specialty, because having knowledge of other judicial concepts
I think is critically important no matter what judge or panel
of judges are making a decision.
Just let me jump to one more thing, Professor. How do you
justify, then, what appears to be the inordinate time it takes
for the FTC to resolve a case? As a prosecutor, I have to agree
with Mr. Parker. In Federal court, I knew that if I were going
to ask the judge for a continuance or extra time, I had better
say the rosaries before I do that because it is going to be
extremely difficult to get that. Doesn't that hurt competition?
And, in effect, if it hurts competition, it hurts the consumer?
Mr. Kirkwood. The FTC has long been worried about the time
that it takes for administrative litigation, so you are
absolutely right to be concerned. Even with the stepped-up
procedures, it still takes a year. So that is a concern. If you
equalize the preliminary injunction standards, there would be
fewer of the cases that would go to the FTC so that you would
have that problem less. To go all the way to eliminate
administrative adjudication creates other costs.
Mr. Marino. I see my time has expired, so I yield back.
Mr. Bachus. Thank you.
Mr. John Conyers, the Ranking Member of the full Committee,
is recognized.
Mr. Conyers. Thank you, Mr. Chairman. I enjoy the
discussion that is going on after the statements.
I begin by asking Attorney Parker, did the Congress, in
your view, create the Federal Trade Commission as an
independent agency? And if your answer is they did so because
they wanted to get more expertise, wouldn't this draft proposal
called SMARTER end up eliminating the administrative
adjudication provision?
Mr. Parker. That was--yes, sir, that was a principal reason
in forming the FTC. But, no, the FTC would--the answer to the
second part of your question is no, because the Commission
would bring its experience to bear in the investigation of the
merger and in the decision whether or not to challenge it.
All I am saying is that the FTC can do its function there,
and I am saying for very practical reasons, given the need for
speed in merger matters, they ought to have it adjudicated in a
Federal court. But the investigation and the decision, the FTC
can bring its full experience and expertise to bear on that,
and they do.
Mr. Conyers. Could I ask the same of you, Attorney Lipsky?
Mr. Lipsky. I basically adopt Rich Parker's answer.
Remember, the FTC has some very considerable resources to bring
to bear on its knowledge and expertise. We mentioned the 6(b)
authority. It has a huge--well, it has a substantial staff of
very talented academic economists, I think most of them with
Ph.D.'s who write research papers related to their work, who
are very serious about advancing the frontiers of antitrust
analysis, and those are very dedicated and smart and committed
people, and that is, I think, part of what gives Mr. Parker the
confidence to express what he has expressed, and I join him in
that answer.
Mr. Conyers. Attorney Garza, do you have a different view?
Ms. Garza. I don't have a different view. I have the same
view. I would only add that the FTC has been very important in
developing merger policy, along with the Justice Department.
The only thing I would add is that the number of mergers,
most mergers, the vast majority, 90-some percent, never get
challenged. A small amount actually get investigated. The ones
that we are talking about here are a very small number of cases
that either agency feels the need to challenge. But it is in
those cases, I think, only where we are saying that the FTC and
the DoJ, when they do move to challenge a transaction, should
do so on the same basis.
Mr. Conyers. Professor Kirkwood, your views?
Mr. Kirkwood. I think that administrative adjudication is
sometimes valuable. In the vast bulk of merger cases--Mr.
Parker thinks it is all merger cases. I am not sure it is all
of them, but in the vast bulk of merger cases, the FTC uses
expertise to decide whether to challenge and how to litigate,
and that is sufficient, ought to be on the same preliminary
injunction standard. But there are some times, as in the
hospital merger case, where that extra expertise is reflected
not only in the development of the investigation but in the
decision to go forward and in the opinion the FTC writes, and
that is valuable.
Mr. Conyers. Is it the view of the four of you that it is
important that the Federal Trade Commission retain its ability
to use administrative adjudication for merger challenges?
Mr. Parker. I would say it is important for them to keep
their administrative ability for everything but merger
challenges would be my position, sir.
Mr. Conyers. All right.
Okay, Mr. Lipsky.
Ms. Garza?
Ms. Garza. I would agree with that. I would just note that
the Antitrust Modernization Commission recommendation, just for
the record, did not ask Congress to preclude the use of
administrative proceedings for consummated transactions.
Mr. Conyers. Professor Kirkwood?
Mr. Kirkwood. Yes. I disagree for the reason I just
mentioned, that it shouldn't be completely eliminated. As Ms.
Garza just mentioned, in consummated transactions, it is
particularly appropriate.
Mr. Conyers. Thank you, Mr. Chairman. I yield back any time
that may be remaining.
Mr. Bachus. Thank you, Mr. Conyers.
At this time, Mr. George Holding, the gentleman from North
Carolina, is recognized.
Mr. Holding. Thank you, Mr. Chairman.
Since we have such a wealth of practical antitrust
litigation experience, I want to switch gears a little bit and
look ahead and explore some related issues. These questions are
for all of you, and we will kind of go in seriatim.
In your general experience in the merger review process,
have you ever run across where the FTC or DoJ has used that
process to extract or impose any extraneous concessions that
aren't necessarily part of the antitrust or other concerns in
the merger?
Ms. Garza. I can tell you that when I was at the Justice
Department, we religiously avoided that. I have never had a
contrary experience at the Federal Trade Commission. I will
note that in the U.S. Airways-American Airline case, the
Justice Department did state that in their relief, they got
some relief that helped to address broader issues preexisting
in the industry, and that did somewhat surprise me, but I don't
know if I would use the word ``extort'' or ``extract'' or
whatever the words you used. But I do think in that case, that
indicated that there may have been some notion of getting
relief that you might not have been able to get from a court of
law.
Mr. Holding. Sure.
Mr. Lipsky?
Mr. Lipsky. I think I can say I haven't run across that
phenomenon in my personal experience. The closest is there were
some cable television merger cases some years ago where I
believe it was the Federal Trade Commission articulated in a
somewhat similar fashion to what Ms. Garza has referred to in
the airlines case that there should be some independent
consideration to media diversity or the diversity of editorial
voices to play a role in the assessment of that merger. But I
was not personally involved in that case, so I can't claim
that.
Mr. Holding. Sure. But would any of you all say that it is
a problem for either DoJ or FTC to use this opportunity of
review to extract some other concessions? Perhaps there is some
behavior of the company that they haven't liked in the past.
They haven't been able to dissuade them from engaging in this
behavior through other means, other court process. You have a
merger review here. You have them as kind of a supplicant, you
know, you are going to approve this merger or not. Would it be
appropriate to extract that?
Mr. Parker. My view is that when I was at the FTC I told
the staff you get what you need to solve the competitive
problem of the merger, and if you don't you go to court, and
you don't ask for anything else. I think that is the
appropriate policy.
Mr. Holding. Anyone want to disagree with that?
Mr. Kirkwood. I would not.
Mr. Holding. Do you think it would be a problem to make
clear in this statute as we are trying to do some good
government legislation here and clarify this standard, so in
addition to make clear in this statute that agencies in
reviewing a merger may not impose such extraneous conditions
unrelated to the merger itself, go ahead and codify what you
all are saying would be a good practice, or is a practice?
Mr. Parker. That, I believe, is the practice, and I don't
see any harm in codifying that. No, sir.
Mr. Holding. All right. Mr. Chairman, I yield back.
Mr. Bachus. Thank you.
I do want to note that Anant Raut is in the audience, and I
appreciate your attendance, a former staffer on the Democratic
side.
Mr. Jeffries, 5 minutes.
Mr. Jeffries. Thank you, Mr. Chair.
Let me thank the witnesses for your appearance and your
testimony here today.
I want to start with Mr. Parker. It is my understanding
that you spend a significant amount of time working at the FTC;
is that correct?
Mr. Parker. I was there for approximately 3 years. At one
point I was head of the Bureau of Competition.
Mr. Jeffries. And I think you mentioned in your testimony
that the agency greatly benefits the United States in terms of
its enforcement efforts; is that right?
Mr. Parker. As a citizen and as an alum, I am very proud of
the work the FTC does. I think it is very good for the United
States, absolutely.
Mr. Jeffries. And so you would agree that it continues to
play a very important role, a substantial role in terms of our
anticompetitive efforts in the United States, which also is
good for the country?
Mr. Parker. Yes, sir.
Mr. Jeffries. Now, as I understand it, in terms of the
legislation that has been placed before us, there are largely
two arguments as it relates to limiting the administrative
litigation ability of the FTC. The first is that somehow it is
unfair for the FTC to get a second bite of the apple. Is that
your perspective?
Mr. Parker. Yes. My perspective is really one of fairness,
that if the FTC gets a second bite of the apple, it kills the
deal, and that the parties to the deal have really not had a
fair opportunity to present it because of the low preliminary
injunction standard. And the idea you are going to be
vindicated, then, in an administrative trial is impractical
because the banks will walk away and your deal will fall apart.
Mr. Jeffries. Now, theoretically it certainly seems like
that has some merit. But in practice, am I correct that this
administrative litigation ability actually has been rarely used
by the FTC?
Mr. Parker. When I was there--I am sounding like an old guy
talking about the good old days--we would slug it out in
Federal court, and in the event of a loss, we would not pursue
administrative litigation. I understand that policy has
changed, and I disagree with that policy. But when I was there
under Chairman Pitofsky, we went to court, we slugged it out.
If we lost, that is it.
Mr. Jeffries. But over the last few years, I believe it has
not been used in terms of the merger context; correct?
Mr. Parker. It has been threatened to be used. It has
been--but the problem is that they will say, okay, we are going
to Part 3, and the parties will say, well, I am dead. I mean,
there is no deal, so there is never any Part 3. Why? Because
the deal went away. So my position is all about fairness.
Mr. Jeffries. Understood, and I appreciate that.
Ms. Garza, it is my understanding that the second criticism
that has been put forth of the process in order to justify
support for this bill has been the notion that the FTC
essentially is superseding the court system through this
administrative process. Is that a criticism that you share?
Ms. Garza. I don't know that that is the way I would put
it. I think the way that I would describe the problem is to ask
you to take a look at the Inova Hospital transaction and what
happened there, because that was an example of where I think
the FTC switched its policy, the policy that had been put in
place by Chairman Pitofsky around 1995, and it illustrates what
happens and what the FTC is doing. In that case, I think
Professor Kirkwood had said there had been numerous losses in
hospital merger cases by both the DoJ and the FTC. So the FTC,
in order to help to ensure that it would prevail in the Inova
case, did some remarkable things. One of the things it did was
it signaled to the court that it filed an administrative
proceeding about the same time that it went into court for the
preliminary injunction, signaling that no matter what you do,
court, we will have an administrative hearing. No matter what
the court does, the parties, we will be in an administrative
hearing, and then persuaded the----
Mr. Jeffries. Ms. Garza, I don't want to cut you off, but
my time is limited, so let me just follow up on that point that
you are raising.
Ms. Garza. Okay.
Mr. Jeffries. Isn't it also the case, however, that the
FTC's administrative process, when that is concluded, is
appealable to the Federal Court of Appeals?
Ms. Garza. It is, but it could be one or 2 years later. So
we will never get to that point is the problem. To say what
other people have said, the deal won't hold together. So it is
an easy or cheap way of killing a deal, through process rather
than on the merits.
Mr. Jeffries. Okay. I certainly understand that argument.
It is a fair argument. But I also just want to make sure it is
clear on the record that in terms of going outside the Article
3 jurisdiction, essentially, even if the FTC pursues its
administrative process, aside from the practical
considerations, it is not extra-judicial, that at the end of
the day Article 3 Federal courts or the Court of Appeals has an
opportunity to consider it.
Mr. Parker. That is correct.
Ms. Garza. Right.
Mr. Jeffries. Thank you.
Mr. Bachus. All right. Thank you, the gentleman from New
York.
At this time, we will go to the gentleman from Georgia, Mr.
Doug Collins.
Mr. Collins. Thank you, Mr. Chairman.
Ms. Garza, you refer to the AMC report statement, the
existence of two different preliminary injunction standards may
undermine public confidence in antitrust enforcement measures.
Could you expand on that point a little bit?
Ms. Garza. Well, the concern is that the Antitrust
Modernization Commission thought it was really very important
to a vigorous antitrust enforcement regime that there be broad
consensus, that even if you might disagree with decisions,
particular decisions, that everybody believes it is a
reasonable system, it is a fair system, it is an understandable
system.
So our concern was anything that appeared to be hard to
explain, where it looked unequal, where it looked as though
process was being stacked against you, where it looked like you
as a practical matter would not get your day in court, that
can't help but to undermine consensus and the need for strong
antitrust enforcement. If you have a lot of that, then you have
your constituents coming to you and saying antitrust
enforcement is unfair, merger enforcement is too stringent. It
may not be an issue of merger enforcement or merger enforcement
standards, but it is an issue of process, and it is an issue of
parties not feeling that they have been unfairly treated and
allowed to have a true day in court. So that is why we think
the process is really important to making sure that you can go
forward with a strong enforcement program.
Mr. Collins. It is amazing to me that the word ``process''
that you used seems to be the key element in a lot of things
that we do up here, especially when it comes to regulatory
issues and rule reform, that the process is the biggest thing.
Many people complain about the end result, but the problem is
the process. The problem is what most people end up seeing.
Do you think the SMARTER Act will make obtaining antitrust
approval easier or more difficult, or merely more transparent
and predictable? Which do you think it would do?
Ms. Garza, or anybody who wants to take it up would be
fine.
Ms. Garza. I really don't think it will affect the merits.
What it does is it takes a little bit of the thumb off the
scale, but I don't think it will inhibit the FTC's ability, as
Mr. Parker has been explaining, inhibit their ability to stop
mergers that should be stopped, to obtain relief where they
should obtain it. So the idea here is not to change the merits
or to change the numbers of transactions that on the merits get
through or not. The whole idea is simply to make the process
more transparent and clear and perceived as being fair.
Mr. Collins. Mr. Parker, do you agree with that, since you
were brought up?
Mr. Parker. I believe it will make it more fair. That will
be the change. Yes, sir.
Mr. Collins. Okay, good.
Mr. Lipsky, have you personally encountered an FTC
administrative litigation that has persisted in spite of a
contrary judicial ruling?
Mr. Lipsky. Personally I have not, no.
Mr. Collins. Okay.
Anybody?
[No response.]
Mr. Collins. Okay, okay.
Mr. Parker, do you believe that the FTC can effectively
perform its antitrust enforcement responsibilities under a
preliminary injunction standard that will be applied following
the enactment of the SMARTER Act?
Mr. Parker. Yes, I certainly do. These people used to work
for me. They are very good. They can function in Federal court
with the best of them. Yes, sir.
Mr. Collins. Does anybody else want to comment on that from
your perspective?
Mr. Kirkwood. One issue that has been surfaced by the
comments just made here is whether equalizing the standards
would make any difference. If it wouldn't make any difference,
even though the FTC has a lower stated standard, the outcomes
would all be the same, so there is less need for this
legislation. It doesn't mean I oppose that aspect of it, but it
is an interesting issue whether any mergers have been stopped
that wouldn't be stopped if you equalized the standards.
Mr. Collins. Okay. So I think the questions that are coming
here and looking at the process, Ms. Garza, do you think the
DoJ is any less effective at antitrust enforcement than the FTC
because of its inability to use administrative litigation? Ms.
Garza?
Ms. Garza. No, no.
Mr. Collins. I think this is an interesting topic, and I
think especially when you--and I love what you said, Ms. Garza,
about process. This goes back to a process issue, and I think
many times the perception of process, whether the end result is
one way or the other, the perception of process, I know at
least from my part of Georgia, perception is reality. If you
want to argue people's perceptions, then you are going to have
a lot of problems. You have to educate on the process, and I
think this is what is good about that.
Mr. Chairman, with that, I yield back.
Mr. Bachus. Thank you.
I think this will conclude our hearing at this time. I
really appreciate the witnesses' testimony.
Each of your written statements will be entered into the
record in their entirety.
With that, this concludes today's hearing.
Ms. Garza. Thank you.
Mr. Bachus. 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 2:32 p.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 Henry C. ``Hank'' Johnson, Jr., a
Representative in Congress from the State of Georgia, and Ranking
Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Thank you, Mr. Chairman.
Today's hearing is an important opportunity to consider the Federal
Trade Commission's role in developing and enforcing antitrust law.
When Congress first established the Federal Trade Commission in
1914, it sought to safeguard consumers against anti-competitive
behavior by breathing new life into antitrust enforcement. Unlike its
predecessor--the Commerce Department's Bureau of Corporations--Congress
specifically empowered the Commission with adjudicative authority to
enforce, clarify, and develop antitrust law. And unlike generalist
courts of that era, the Commission also had the mission to study and
enunciate the law as an expert tribunal through its research and
information-gathering authority.
A century later, the Commission continues to advance antitrust law.
Under the process for administrative litigation--also known as Part 3
litigation--the Commission may seek permanent injunctions in its own
administrative court in addition to its ability to seek preliminary
injunctions in federal district court. This additional authority is a
unique mechanism that takes advantage of the Commission's long-standing
expertise to develop some of the most complex issues in antitrust law.
It is critical to the Commission's mission to promote competition and
consumer welfare.
Today, this Subcommittee will consider the ``Standard Merger and
Acquisition Reviews Through Equal Rules,'' or SMARTER Act. This bill
would create a uniform standard for preliminary injunctions and
eliminate the Commission's century-old authority to adjudicate the
permanent injunctions of mergers, acquisitions, joint ventures, or
similar transactions.
The stated goal of the SMARTER Act--to create a uniform process for
merger review between the Federal Trade Commission and Department of
Justice--is not without appeal.
I consider myself a man of the law and strong supporter of the
third, co-equal branch of government, the federal judiciary. I
understand the objective of reserving power for the federal courts
instead of agencies, and creating symmetry in antitrust enforcement.
I also understand the concerns associated with administrative
litigation. But I would point out that these concerns are hardly new
and have existed for decades without serious proof of actual harm or
unfairness.
The American Bar Association expressed concerns with the FTC's
``twin role as prosecutor and judge'' in a landmark report twenty-five
years ago, but ultimately concluded that the benefits of this
enforcement regime outweighed these concerns. Likewise, when the ABA
revisited this question seven years ago, it continued its support of
administrative litigation with an important exception: In the rare case
of the FTC pursuing administrative litigation after a federal court
denies a preliminary injunction.
I am comfortable with creating parity in the standard for
preliminary injunctions, or perhaps tinkering with Part 3 litigation in
a pragmatic, even-handed way that does not undermine competition or
consumer protection.
But the prospect of completely eliminating the FTC's adjudicative
authority--a practice that has expertly guided our nation's antitrust
laws for a century--raises serious concerns.
I cannot stand by and support legislation that would dismantle
government and a century of progress under the guise of symmetrical
enforcement.
Although I welcome today's hearing, I sincerely hope that we can
work to find an even-handed solution that does not throw the baby out
with the bath water. After all, if we can all agree that anti-
competitive mergers pose serious threats to consumers and the
marketplace, the overriding goal of this legislation should be to
preserve competition.
I thank the Chair for holding this hearing and yield back.
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, and Ranking Member, Committee
on the Judiciary
The draft bill that we consider today--the ``Standard Merger and
Acquisition Reviews Through Equal Rules Act of 2014'' or SMARTER Act--
would make the Federal Trade Commission adhere to the same merger
enforcement procedures as the Justice Department's Antitrust Division.
While certain aspects of this proposal have a logical appeal, I
have several serious concerns as well.
Most importantly, by making the FTC like the DoJ, this proposal
would weaken the FTC's independence, which contravenes Congress's
original intent in establishing the FTC.
Without question, Congress established the Commission to be an
independent administrative agency for good reasons.
In particular, Congress was dissatisfied with the failure of the
Sherman Antitrust Act of 1890 to stop the merger wave and corporate
abuses that occurred over the course of the 24 years following its
enactment
It should be noted that Congress created the FTC in 1914
notwithstanding the fact that the Justice Department's antitrust
enforcement authority had already been in existence and fully
functional at that time.
So, the FTC was established by Congress to function as a body of
experts that could develop antitrust law and policy comparatively free
from political influence, and particularly executive branch
interference.
To effectuate these purposes, Congress gave the FTC broad
investigative and reporting powers as well as the authority to use an
administrative adjudication process to enforce the antitrust laws
rather than try cases before a federal judge.
Unfortunately, the SMARTER Act, by eliminating distinctions between
the FTC and the DoJ in merger enforcement procedures, threatens to
undermine Congress's original intent in creating the Commission.
Particularly problematic in this regard is the bill's provision
eliminating in merger cases the administrative adjudication process
under section 5(b) of the FTC Act.
This provision fundamentally changes the character of the FTC in
the merger context, transforming it from an independent administrative
agency into just another enforcement agency like the Antitrust Division
of the Justice Department.
Additionally, eliminating the FTC's ability to conduct
administrative adjudication would harm the FTC's ability to protect
consumers.
Administrative adjudication, by which the agency and the merging
parties litigate their case in front of an agency administrative law
judge, allows for a less formal adjudication process before a panel of
experts, in contrast to litigation before a generalist judge in a
federal court. Moreover, the administrative process allows the testing
of novel theories and the development of expertise in new industries in
a way that a generalist court is less well-suited to handle.
Moreover, although the legislation purportedly is limited to merger
enforcement, certain provisions appear to curtail the FTC's
administrative litigation authority beyond merger cases, which could
jeopardize the FTC's independence.
In particular, the SMARTER Act would exclude from the FTC's
authority to use administrative adjudications not just for a merger or
acquisition, but also for a ``joint venture'' or ``similar
transaction.''
Moreover, it would exclude from the FTC's authority to
administratively issue cease-and-desist orders ``any activity in
preparation for a merger, acquisition, joint venture, or similar
transaction'' that may result in an unfair method of competition.
The clear import of this provision, which reaches conduct beyond
mergers and acquisitions, would be to further curtail the FTC's
administrative authority in the future.
Finally, our preeminent goal here should be to strengthen, not
weaken, antitrust enforcement in order to protect consumers, which is
why FTC Chairwoman Edith Ramirez wrote to this Subcommittee raising
concern about the SMARTER Act.
As Chairwoman Ramirez pointed out, the bill would have ``far-
reaching immediate effects'' and ``fundamentally alter the nature and
function of the FTC, as well as the potential for significant
unintended consequences.''
Therefore, any effort to lessen the FTC's independence and thereby
weaken its ability to vigorously enforce antitrust laws must be viewed
with great skepticism.
Unfortunately, antitrust scrutiny of mergers has been woefully
deficient over the past 30 years, although there has been some modest
improvement 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.
Fewer and more dominant firms within an industry forces consumers
to pay higher prices and to accept suboptimal products or services.
As I noted at the outset, the SMARTER Act has some logical appeal.
I do not foreclose working with my colleagues on a narrower proposal
that does not touch administrative adjudication. As currently drafted,
however, I cannot support this measure.