With profound disappointment I learned today that DOJ Assistant Attorney General for Antitrust Charles James and FTC Chairman Timothy Muris executed an agreement that allocates merger reviews and conduct investigations between the two agencies on the basis of industries. This Agreement - which is identical to the one proposed on January 17th - was executed without substantive consultation with me, without approval of the FTC's Congressional committee Chairmen, and without the meaningful public dialogue that such a sweeping proposal deserves.(1) On January 17th, when this Agreement was first put forward, I stated that "[w]hile generally I favor intra-agency agreements that enhance the speed and efficiency of case processing, today's announced Agreement raises substantial concerns." During the intervening weeks my concerns have not been addressed and, in fact, for several reasons have only been heightened.
First, it was only last Thursday that I saw for the first time a memorandum prepared by four private antitrust attorneys who advised the Chairman and Assistant Attorney General on, among other things, how to allocate between the FTC and DOJ the future review of cases in various industries. Despite repeated prior requests, this memorandum was not provided to me or my colleagues but was instead belatedly posted with other documents on the FTC Web site. This non-public consultation with private attorneys is not a substitute for meaningful consultation with FTC Commissioners who are appointed by the President and confirmed by the Senate to work on behalf of the public interest.
Second, the documents that have been publicly provided as support for the Agreement are fundamentally flawed. For example, letters from the ABA Antitrust Section, former FTC and DOJ officials, Senators Herb Kohl and Mike DeWine, and the U.S. Chamber of Commerce each state support for some form of clearance agreement, but the authors take great pains to avoid stating that they support today's Agreement. Also, the proffered statistical data supporting the Agreement overstate DOJ's expertise in media and cable transactions, while failing to note the FTC's considerable experience in these matters. (See Attached)
Finally, I continue to be concerned that the public benefit of the Commission's independent expertise and knowledge in certain key industries, such as media, entertainment, and high technology, will be lost. Reviews of mergers and conduct - such as anticompetitive foreclosure - in these industries may be among the most important antitrust matters reviewed by the federal antitrust agencies. History demonstrates that the five-member independent Commission has used its democratic decision-making process to protect media consumers, the industry, and democracy.(2) Moreover, the Commission's substantial expertise and meaningful bi-partisan agency enforcement actions in the high-technology area may no longer be available to the public. See, for example:
In the end, I believe that issues raised by today's clearance Agreement are far too important to be resolved in secret or only with documents acting as a substitute for meaningful consultation. Thus, in the spirit of transparency - and with the hope that fuller discussion and debate will occur - I am making publicly available several analyses that I prepared in response to Congressional staff requests. (See attached) The information and statistics in these documents directly challenge the assertions contained in materials generated "after-the-fact" to justify the Agreement.
For the record, I continue to support the goal of clearance efficiency and reform, and believe there are workable parts of the present Agreement. But very little has been provided to justify the jiggering of the FTC's current antitrust authority, and I have seen nothing to demonstrate the need to move all responsibility for ensuring competitiveness in information, technology, thoughts and entertainment, to the executive branch through the Department of Justice.
What the events of the past six weeks have shown is that transparency in policymaking at the Federal Trade Commission and the Department of Justice is needed now more than ever. I hope it can begin with substantive dialogue to meaningfully discuss ways to resolve clearance issues related to our nation's media, entertainment, and high technology industries. The public interest demands no less.
1. Untitled document relating the abandoned DOJ/FTC Clearance Agreement, January 22, 2002.
2. Untitled document listing recent FTC cable expertise, Submitted February 20, 2002.
3. "Comments on the Department of Justice's Submission Concerning Media and Entertainment Clearance Statistics," Submitted February 20, 2002.
4. "Allocating Antitrust Investigations Involving the Media and Entertainment Industries By Content and Distribution," Submitted February 22, 2002.
Procedural Improvements for Clearance. The bulk of the proposed clearance improvements involve process and timing; industry allocations are a separate issue. According to the FTC Chairman, the changes will improve the clearance process and ensure that clearance disputes are resolved within 10 days. The agencies may enact these process changes without allocating industries between the two agencies.
Clearance Statistics. The press release to announce the abandoned clearance agreement stated that, over the past two years, 32 disputed clearance matters took 15 days or longer to resolve. Several statistics may help put this number in context:
FY01: HSR statistics not public yet. (Likely around 2200 merger filings.)
FY00: 4749 Transactions 339 Investigations cleared 98 2d Requests 80 Challenges
FY99: 4340 Transactions 391 Investigations cleared 113 2d Req. 77 Challenges
FTC Act Section 5. Section 5 encompasses a greater scope of anticompetitive conduct than does the Sherman Act, so it allows the FTC to remedy conduct that can not be reached by DOJ under the Sherman Act. For example, the Commission can reach facilitating practices under Section 5. Facilitating practices (practices that facilitate horizontal collusion) are more typically a problem in oligopolistic industries such as media markets. The facilitating practice count was a critical aspect of the CD MAP case involving the five major music companies. Because of the legal parameters of a Sherman Act case, DOJ's bringing such a case might have proved problematic.
Administrative Litigation. Congress established the FTC as an expert antitrust body with its own administrative litigation process to handle novel, cutting-edge antitrust cases. For example, administrative litigation has helped develop the law in such novel areas as antitrust immunities (Ticor Title Insurance; Superior Court Trial Lawyers). This ability could be critical when litigating deregulating markets such as cable and when involving complex conduct cases.
Synergies with Consumer Protection Activities. The Commission's consumer protection mandate has provided the agency growing expertise in high-tech industries. For example, consumer fraud cases involving Hewlett Packard and Microsoft (PDAs); AOL, CompuServe, and Prodigy (ISP services); and Sharp Electronics (Mobile/Hand-held PCs).
Below is a sampling of the numerous cable industry mergers and agreements that the Federal Trade Commission has investigated in recent years:
[DETAILED CASE DESCRIPTIONS TO BE PROVIDED LATER]
The Department of Justice's Submission
Concerning Media and Entertainment Clearance Statistics
Provided to the Senate Committee on Appropriations
On January 29, 2002, The Department of Justice provided a set of materials to the Senate Committee on Appropriations. When viewed beyond the facade of the aggregate numbers presented, the materials demonstrate the Federal Trade Commission's success relative to the Department, as well as its expertise in significant segments of the broad, diverse media and entertainment sectors.
1. The materials reveal that the FTC is the more effective compared to DOJ in the DOJ-defined combined areas of telecommunication, media, and entertainment.
2. The FTC tends to investigate complex and novel media and entertainment antitrust matters, while DOJ frequently handles narrow cookie-cutter media and entertainment investigations. These DOJ cookie-cutter investigations result in many easy-to-get consent decrees; however, these matters do not add much value to DOJ's expertise in other media and entertainment industries.
3. By adjusting Attachment A's results (through subtracting out the numbers relating to DOJ's cookie-cutter cases), the revised statistics offer that, of the two agencies, the FTC has brought a greater number of enforcement actions in the overall media and entertainment sector:
4. Because of DOJ's failure to prosecute a large percentage of matters that it investigates, the adjusted Attachment A figures shows even more dramatically how much more effective the FTC has been in the FTC's investigations of media and entertainment matters:
5. DOJ's expertise in the telecommunications industry of course does not create expertise for media and entertainment sector because DOJ's telecommunications experience lies primarily in telephone and radio related areas.
6. Three current FTC Commissioners believe that the FTC has a unique role in media and entertainment investigations: Commissioners Anthony and Thompson so stated in their January 18, 2002 statements concerning the abandoned clearance agreement. And Commissioner Leary, as reported recently in FTC Watch, supports the FTC involvement in challenging, dynamic media and entertainment cases:
The FTC's primary mission, as envisioned by Congress is to provide forward-looking guidance that tackles intellectually challenging cases, Leary says. For example, he said, the Commission needs to stay focused on: . . . merger cases in new rapidly changing arenas, such as AOL/TW - 'that absorbed more time and energy than any other cases since I've been here and was all worth it.'"(3)
7. The DOJ category labeled "Media and Entertainment" - as demonstrated by Attachment A - constitutes a wide variety of different industries with various structures and market dynamics. Expertise in one type of matter and market - say analyzing TV station mergers or billboard mergers - does not benefit the agency in analyzing matters involving another industry, such as the cable or broadband industries (and the AOL/Time Warner merger). Several possible rationale alternatives could be pursued instead of the proposed clearance agreement:
Allocating Antitrust Investigations Involving the Media and Entertainment Industries By Content and Distribution
|Music Licensing Rights||DOJ||DOJ||DOJ|
|Cable/Satellite programming (MVPD)||Mix||DOJ||FTC|
|Upstream Internet video content||-||DOJ||FTC|
|Satellite Services (e.g., DBS)||DOJ||DOJ||DOJ|
|Set-top Boxes and other inside-the-house Internet and cable equipment||DOJ||DOJ||FTC|
|Upstream Internet video distribution||-||DOJ||FTC|
|Cable Services (video/data/audio)||FTC||DOJ||FTC|