OBTAINING EVIDENCE ON MARKET DEFINITION,
MARKET POWER AND ENTRY IN LIGHT OF GLOBAL COMPETITION:
DIFFICULTIES AND CONSEQUENCES

by Michael L. Weiner

I. There may be significant difficulties in obtaining evidence relating to market definition, market power, and entry in markets characterized by global competition.

A. Global competition may significantly affect the definition of relevant product markets, the identification of market participants and potential entrants, the analysis of market structure and the existence of market power, and the determination of entry conditions.

1. Global competition may require an inquiry into actual or potential demand and supply substitutability of products and capacity of suppliers outside the United States.

2. Global competition may also require the analysis of additional economic and political factors, e.g., exchange rate fluctuation, tariffs, quotas, government subsidies, local purchasing requirements and other trade restraints.

B. The amount, quality (accuracy, reliability and type) and source of information on global competition results in a number of problems for antitrust enforcement agencies. While not all of these problems can be overcome, their impact can be addressed by recognizing their existence and appropriately adjusting the agency's approach to merger review and remedy.

C. The availability of information and ultimately of evidence required to account fully for global competition in defining markets, identifying market participants and potential entrants, determining market structure and market power, and considering entry barriers can differ significantly from the type and quantity of information typically relied upon by the U.S. antitrust enforcement agencies in analyzing mergers that involve markets that are limited to the borders of the United States.

1. Sources of, and methods of obtaining, information typically used by the U.S. antitrust enforcement agencies in evaluating transactions that do not require an assessment of global competition include:

a. Parties to the transactions -- competitively sensitive information.

(1) Compulsory process -- HSR, subpoena.

(2) Voluntary submissions -- white papers, presentations, requested voluntary submissions.

b. Third parties -- customers, competitors, suppliers -- competitively sensitive information.

(1) Voluntary -- agency-initiated interviews or third-party interventions (e.g., a complaining competitor).

(2) Compulsory process -- subpoena, industry-wide surveys.

c. Publicly available information -- e.g., government and trade association data, industry analyst reports.

d. Agency knowledge and experience with the relevant industry from previous investigations, studies and cases.

2. The agencies do not enjoy the same availability, quantity or quality of information on global competition as they do for domestic competition. Moreover, within the HSR review period it is unlikely that as much of the information on non-U.S. competition will be accessible on a timely basis.

a. Certain desired information is either unique to or more likely to be significant in industries with global competition:

(1) Trade barriers -- tariffs, quotas, duties.

(2) Government subsidies for non-U.S. competitors.

(3) National security or economic/political concerns -- e.g., the ability of foreign suppliers to participate in U.S. markets with technology or products deemed sensitive by a foreign government.

(4) Label, etc. requirements -- need for English text, label/warning text requirements.

(5) Quality of foreign products.

(6) Features of foreign products -- e.g., different standards and ease or difficulty in adapting to domestic standards.

(7) Foreign competitive environments -- e.g., the existence of power buyers, ability to price discriminate with respect to U.S. buyers or to devote additional capacity to the U.S. marketplace.

(8) U.S. government regulations -- e.g., FDA approvals and acceptance of foreign studies/approvals.

(9) U.S. government or corporate policies or regulations prohibiting or discouraging importation of relevant products -- e.g., military procurement policies and policies or regulations concerning Cuba or Chinese products produced by forced labor or child labor, etc.

b. Information from the parties to the merger.

(1) Compulsory process is likely to be available to the staff; incentives for voluntary submissions by the parties remain intact.

(2) If the parties do not compete globally they may lack knowledge regarding the international competitive environment, but this is no different than a regional competitor lacking knowledge about other regions in the U.S.

c. Information from U.S. customers and competitors.

(1) The agencies appear to have been concerned primarily with the effect on U.S. consumers. Information from U.S. customers should be as forthcoming both voluntarily and through compulsory process as with U.S. market analyses.

(2) U.S. third parties have the same incentives voluntarily or through compulsory process to provide requested information, documents or other evidence whether or not global competition exists.

(3) While U.S. customers or competitors may be able to provide certain evidence, their knowledge of actual or potential non-U.S. competitors and foreign market conditions may be limited.

d. Given the limited ability of U.S. persons to provide relevant information on non-U.S. competitive environments, non-U.S. sources of information are important, if not critical.

(1) Market definition, market structure, the potential for anticompetitive effects and entry conditions involve highly fact specific analyses.

(2) Much of the desired information and evidence often will be available only from non-U.S. sources. For example:

(a) market definition: e.g., non-U.S. product and geographic demand substitutability;

(b) market structure: e.g., foreign capacities, production, capacity utilization rates, production substitutability; power buyers; uncommitted foreign entrants, ability, time, cost;

(c) competitive effect: e.g., whether global market conditions are conducive to reaching terms of coordination, and detecting and punishing deviations from those terms;

(d) entry: e.g., potential foreign entrants, time, cost, production substitution, entry plans.

II. The quality and quantity of evidence on global competition available to the FTC and DOJ will be less than that of evidence available on domestic competition and, in some cases, will be viewed as inadequate to reach ultimate conclusions prior to deadlines for initial determinations of the competitive effect of a proposed merger.

A. The type, quantity, quality and sufficiency of information that the staff seeks and has historically relied upon in its analysis of proposed transactions in industries insulated from global competition will not likely be available where global competition is significant. Nor is the staff likely to be able to obtain available information in a timely manner.

1. Information available from the parties will be limited. The staff will want competitively sensitive information that is available only from non-U.S. competitors or other non-U.S. sources. The staff will also want non-U.S. market data that may or may not be available from public sources.

2. Compulsory process will not be available to the agencies for persons outside their jurisdictional reach. The federal agencies thus lose an important tool in evidence/information collection.

3. Voluntary submissions by foreign entities are also unlikely to result in the agencies obtaining the type, quantity and quality of information desired.

a. Foreign persons are unlikely to cooperate voluntarily with the U.S. agencies to the same degree, if at all, as U.S. persons.

(1) Confidentiality concerns.

(2) Distrust of any government entity.

(3) No legal or economic incentive -- many foreign parties will not expect to deal with the U.S. agencies in the future; FTC and DOJ requests for information can be time consuming, costly and otherwise burdensome.

(4) Many foreign companies are in countries that do not have the practice of or allow for discovery as broad as discovery in the U.S.; nor do they otherwise have experience with providing government agencies, their own much less a foreign government's, with information, particularly competitively sensitive and other confidential information.

(5) For example, foreign recipients of second requests often need to be convinced that the U.S. antitrust agencies do have the perceived need for and the ability to demand significant production of detailed information and documents, and otherwise to be educated about the importance of full and timely responses.

b. Information that is obtained from foreign persons may be mostly limited to anecdotal information and/or come from competitors who have an incentive to cooperate with the U.S. agencies in an attempt to block mergers that increase competition and/or harm the competitor in markets unrelated to the U.S. Because the U.S. agencies' information on non-U.S. competition will be limited the agencies need to pay careful attention to the source of the information.

c. Mergers involving global competition issues do not necessarily result in parallel investigations by foreign competition agencies from whom information can be obtained. Even in cases where there is a parallel investigation, it is unlikely that the foreign agency has obtained all the information desired by the staff or has the ability to share that information with the U.S. enforcement agency.

(1) Other governments do not rely as heavily upon economic analysis as do the FTC and the DOJ.

(2) Other governments take into consideration factors that the U.S. agencies do not, e.g., labor concerns, protecting national champions or other domestic competitors, etc.

(3) Some countries will have blocking or confidentiality statutes prohibiting the sharing of information with the U.S. agencies.

d. Even to the extent that information is available from foreign persons, much of that information is unlikely to be obtained within the typical time frame for a merger investigation.

(1) Obtaining information from a foreign agency requires that the agency, which will have a different time frame, first obtain the information.

(2) Firms in some countries are not used to providing information quickly and fully.

(a) Foreign practice may not be as time sensitive as in the U.S.

(b) A foreign agency or firm's idea of what constitutes a complete response to the U.S. enforcement agency's request may differ significantly from what the U.S. agency would consider a complete response. Repeated follow-up requests may be needed.

B. There is little the parties or the U.S. agencies can do, including encouraging legal or regulatory changes in other countries, to ensure that the U.S. agencies will have access to sufficient information on non-U.S. competitors and competition.

III. The U.S. enforcement agencies must accept that in a world of global competition they often must do more with less.

A. The information available to the U.S. antitrust enforcement agencies will often be inadequate -- imperfect, incomplete and untimely.

B. The agencies may often have to rely on anecdotal evidence rather than reliable detailed evidence in order to define markets, identify market participants and potential entrants, determine market structure and market power, analyze the potential for anticompetitive effects, and understand entry conditions.

C. In performing their antitrust analysis, the agencies must remain mindful that the ultimate test is whether they can successfully litigate their case in court, where the agency will carry the burden of proof. The agencies must carefully consider and weigh:

1. The form and evidentiary value of information obtained;

a. Information obtained from foreign sources will not always be in the form of solid or admissible evidence.

b. While foreign sources may be willing to provide information orally or otherwise, such sources may be hesitant to provide the necessary sworn statements or witnesses for the same reasons discussed above.

2. The strength of the agency's evidence and conclusions;

3. The likelihood that the agency and the parties will obtain additional information with additional time; and

4. Whether additional evidence will support or undermine the agency's case.

IV. Limited Solutions: What can be done to lessen the degree of uncertainty that appears inherent in analyzing markets in light of global competition?

A. Presumptions with respect to market definition, market structure/power and entry/entrants.

1. One way to address the problem of imperfect information, and the time and cost required to collect better information, is with presumptions, given a certain amount of anecdotal evidence or other indications, that a market is to be defined either broadly or narrowly, entry is either difficult or easy, all foreign capacity should be included or excluded from the market, etc.

2. Any presumption would be highly problematic.

a. First, there is no basis for suggesting that, for example, in light of global competition markets tend to be broader rather than narrower, or vice versa. This is not a matter of administrative convenience such as is used to justify application of a per se rule under Section 1 of the Sherman Act.

b. Second, even if it were decided that any ambiguity should be resolved in favor of blocking or restricting a merger, a presumption about market definition or market structure may be of no use. A broadly defined market, for example, can weigh toward enjoining or allowing a merger depending on a number of other factors such as the areas of geographic and product competition between the parties.

c. A presumption relating to ease of entry may have a more predictable effect on the analysis of a particular merger but there is no basis for erring on the side of either allowing or preventing mergers since mergers can result in either procompetitive efficiencies or anticompetitive market power.

B. Deference to foreign competition authority review.

1. In cases where foreign competition authorities are conducting parallel reviews of the same merger, it might be suggested that the U.S. agencies could defer to the conclusions of foreign regulators on certain issues. Even though foreign agencies might have access to information not available to the U.S. agencies, the U.S. agencies generally have not and should not defer to other agencies' conclusions.

a. Generally speaking, U.S. antitrust analysis is much more rigorous in its economic analysis than that of other countries. Because most foreign agencies are less sophisticated in their economic analysis than are the FTC and DOJ, their conclusions may not be sound.

b. Other countries consider factors that are irrelevant under U.S. antitrust analysis, such as labor and domestic competitors' well-being, even to the detriment of competition.

c. As a result the U.S. agencies cannot rely on foreign agencies' conclusions and, in some cases, information.

d. Most foreign agencies are not as well staffed as the FTC and DOJ, and therefore are not always able to dedicate the time, resources or sophistication that the U.S. agencies can devote to a rigorous review.

2. The U.S. agencies should seek information obtained by foreign agencies, but should not rely on the conclusions of those agencies.

a. Many foreign agencies, however, will be faced with blocking statutes designed to protect the confidentiality of information and prevent the sharing of information with the U.S. antitrust enforcement agencies.

C. While inter-governmental cooperation and exchanges of information should be encouraged, they may be of limited utility due to the timing considerations mentioned previously, as well as the difference between U.S. and other government's investigatory powers and the U.S. agencies' reluctance to defer to other agencies' findings.

V. Flexible Remedies: The U.S. antitrust enforcement agencies should employ additional flexibility in structuring remedies to competitive concerns based on imperfect information.

A. Because the U.S. agencies are required to make decisions based on imperfect information, if they do decide that a merger raises antitrust concerns, remedies should be structured taking into account that the underlying analysis is only as good as the (imperfect) information on which it is based. Consent decrees should therefore be flexible to allow for adjustment if markets (in terms of definition, power, ease of entry, etc.) prove to be different than assumed.

B. Difficult analysis requires creativity and nontraditional flexibility in drafting remedies. Examples of flexibility include:

1. Market guided remedies. Divestiture may be required to be accomplished in phases. For example, one-third of the assets may be required to be divested promptly, with subsequent partial divestitures one or two years apart. Depending on market responses or changes, or the subsequent availability of additional relevant information, less or more of the total assets initially subject to a divestiture order may actually be required to be divested.

2. Marketplace determined divestitures. Remedies can be designed to allow the marketplace to decide the appropriate level of remedy. For example, if the remedy is the licensing of technology or products to other persons, it may be appropriate first to offer licenses on a limited basis consistent with fundamental concerns about viability. If there is no demand for the license as initially offered or such licensing is not otherwise possible, the license can be expanded until the technology or product is licensed, thus allowing the market to determine what is required to compete successfully with the merged entity. Licenses under such an arrangement can be expanded in terms of exclusivity, duration, form and amount of royalty payments, geographic scope, pass-on of improvements, etc.

3. Reconsideration at a later date with a lower standard of review. In order to modify a consent decree today a party must show that the purpose of the decree has been substantially effectuated or that there has been a change in circumstances making it no longer equitable to enforce the decree. When a consent decree is negotiated in the context of an agency analysis that is based on imperfect information, it should be recognized as adequate, for the purposes of modifying the decree, to present evidence at a later date that was not available to the agency or the parties at the time of the consent decree negotiations. Although this type of provision is more readily applicable to conduct relief, it may be applied to divestiture relief in some circumstances.

4. Longer divestiture times. Where appropriate hold-separate protections are negotiated, a longer period of time could be authorized for the accomplishment of mandated divestitures of assets to resolve competitive concerns. This longer period would allow the parties to seek modification of consent decree divestiture requirements if additional relevant information becomes available regarding global competitive conditions.

C. Certain of the foregoing, or other creative, consent decree provisions may require a greater degree of monitoring or post entry effort by the staff than usually required. Such additional effort, however, is not a rationale for not considering such provisions. Indeed, the U.S. antitrust enforcement agencies should welcome the opportunity to address potential concerns without ending up in court where the effort required of the staff will be many-fold that required by a well-drafted consent decree.

D. It is not possible to list all ways in which consent decrees can be made more flexible. What is important is that, to the extent that the U.S. antitrust enforcement agencies must increasingly rely upon less than perfect information and evidence in their determinations, perceived antitrust concerns should be addressed with corresponding flexibility and creativity. The actual provisions of a particular consent decree will, of course, be case specific.