Statement of the Federal Trade Commission
Committee on the
Subcommittee on Antitrust, Competition, and Business and Consumer Rights
United States Senate
An Overview of Federal Trade
Commission Antitrust Activities
September 19, 2002
Mr. Chairman and Members of the
Subcommittee, I am pleased to appear before you to present testimony of
the Federal Trade Commission discussing an overview of our antitrust
The actions and initiatives I will discuss
today are the product of, and a testament to, a professional,
highly-qualified, and dedicated staff. Their work has made the FTC the
well-respected agency that it is today.
By enforcing the antitrust laws, the Federal Trade
Commission helps ensure that markets operate freely and efficiently.
Aggressive competition promotes lower prices, higher quality, and greater
innovation. The work of the FTC is critical in protecting and
strengthening free and open markets in the United States.
The FTC's record is impressive. The agency has
fulfilled its mission of protecting American consumers by pursuing an
aggressive law enforcement program during rapid changes in the marketplace
- the past decade saw the largest merger wave in history, the rapid growth
of technology, and the increasing globalization of the economy. Through
the efforts of a dedicated and professional staff, the FTC has shouldered
an increasing workload despite only modest increases in resources.
The guiding word at the Commission is "continuity."
The agency continues aggressively to pursue law enforcement initiatives,
launch consumer and business education campaigns, and organize forums to
study and understand the changing marketplace, just as we have done for
several years. Our competition mission continues to reflect the following
widely-shared consensus: (1) the purpose of antitrust is to protect
consumers; (2) the mainstays of antitrust enforcement are horizontal cases
- cases involving the business relations and activities of competitors;
(3) in light of recent judicial decisions and economic learning,
appropriate monopolization and vertical cases are an important part of the
antitrust agenda; and (4) case selection should be guided by sound
economic and legal analysis, and made with careful attention to the facts.
The FTC is primarily a law enforcement agency, and
we will continue aggressive enforcement of the antitrust laws within the
agency's jurisdiction. The Commission also has a broader role as a
deliberative body and independent expert on issues affecting the market.
Thus, the Commission is well-suited to studying an evolving marketplace
and developing antitrust policy. In this role, we continue to hold public
hearings, conduct studies, and issue reports to Congress and the public.
Our activities of the past year illustrate how this
broad role promotes competition. The Commission's testimony today will
highlight three main goals and achievements: (1) building on the agency's
recent history of aggressive law enforcement; (2) focusing on industries
and issues significant to consumers, such as energy, health care, and
matters derived from the new economy, including intellectual property
rights; and (3) continuing to use the FTC's special role as an expert
agency to advance the state of knowledge about particular issues central
to our mission. In accomplishing these goals, there is a high degree of
unity among the five Commissioners. In fact, there is near unanimity in
voting patterns, particularly with respect to votes concerning law
enforcement matters. The near unanimity of voting patterns reflects both a
broad consensus among the Commissioners about the types of cases the
Commission should pursue, and the careful and deliberate process by which
the Commissioners consider matters, consulting with the staff to address
the issues and concerns of individual Commissioners.
An Overview of The FTC's
Antitrust Enforcement Activities
A. Anticompetitive Mergers. Merger
enforcement continues to be a staple of the Commission's enforcement
agenda. Stopping mergers that substantially may lessen competition ensures
that consumers pay lower prices and have greater choice in their
selections of goods and services than they otherwise would. The level of
merger activity in the marketplace, along with other factors, affects the
FTC's merger workload. During the 1990s, record-setting levels of mergers,
both in numbers and in size, required extraordinary efforts by the FTC
staff to manage the necessary reviews within statutory time requirements.
Recent economic conditions have reduced merger activity, and amendments to
the Hart-Scott-Rodino Act(2) have cut the number of proposed mergers reported to the government.
Even so, Commission merger enforcement remains a significant challenge for
the following reasons:
- The size, scope, and complexity of mergers have increased.
The number of mergers still remains relatively high by historic
standards, and mergers also continue to grow in size, scope, and
complexity. The dollar value of last year's reported mergers was about
82 percent higher, in nominal terms, than the 1995 total, even without
any adjustment for the different filing thresholds. In fact, the $1
trillion total in 2001 exceeded the average annual total dollar value of
reported transactions during the booming 1991-2000 decade. The size of
mergers affects the FTC's workload because mergers among large
diversified firms are likely to involve more products than mergers among
smaller firms, and thus generally involve more markets requiring
antitrust investigation. In addition, larger firms are more likely to be
significant players in the markets in which they compete, which
increases the need for antitrust review. Finally, as new technologies
continue to grow and as the economy becomes more knowledge-based, the
resulting complexity of many mergers requires more extensive inquiry.
- Large numbers of mergers still require scrutiny.
The number of proposed mergers raising competitive concerns remains
significant. Despite fewer reported transactions, the Commission's level
of enforcement activity remains at a high level. Through the first eight
months of this year, for example, we opened over 100 merger
investigations and issued 24 requests for additional information under
the HSR Act ("Second Requests"), numbers only slightly below those
during the peak merger wave years 1996 through 2000. Thus far in FY
2002, the Commission has taken enforcement action in 23 mergers. Thus,
despite a reduction in the number of HSR reported transactions, our
merger enforcement workload remains high because the workload derives
mostly from the number of transactions raising antitrust concerns, not
from the overall number of filings.
- Non-reportable mergers now require greater attention.
Although fewer proposed mergers remain subject to the reporting
requirements of the HSR Act, the standard of legality under Section 7 of
the Clayton Act remains unchanged.(3)
Consequently, we need to identify (through means such as the trade
press and other news articles, consumer and competitor complaints,
hearings, and economic studies) those unreported, usually consummated,
mergers that could harm consumers. So far this fiscal year, the
Commission has challenged two non-reportable mergers.(4)
In August, the Commission announced a settlement regarding these two
- Resource-intensive litigation is more frequently needed.
While the Commission resolves most merger challenges through settlement,
it is sometimes necessary to litigate, particularly when the merger at
issue already has been consummated. Merger litigation requires enormous
resources. At the height of preparation, a single merger case requires
the full-time attention of numerous staff members - not only lawyers,
but also economists, paralegals, and support staff. To counter arguments
and evidence presented by merging parties, these cases also require
analysis and testimony by outside experts with specialized knowledge,
which can be extremely costly. Since the fiscal year began, the
Commission has filed two administrative actions,(6)
and has authorized federal court challenges to five proposed mergers
involving products including rum,(7) food service glassware,(8) pigskin and beef hide gelatin,(9) telescopes,(10) and cervical cancer screening products.(11)
B. Streamlining Merger Review. The FTC has
been working with the Antitrust Division of the U.S. Department of Justice
(DOJ) to establish procedures to make the HSR merger review process more
efficient and transparent. The FTC has focused on several areas,
- Electronic Premerger Filing. As part of an overall
movement to make government more accessible electronically, the FTC,
working with the DOJ, will accelerate its efforts in FY 2003 to develop
an electronic system for filing HSR premerger notifications. E-filing
will reduce filing burdens for businesses and government and create a
valuable database of information on merger transactions to inform future
- Burden Reduction in Investigations. The
agencies have taken steps to reduce the burden on merging parties in
document productions responsive to Second Requests. In response to
legislation amending the HSR Act, the Commission amended its rules of
practice to incorporate new procedures. The amended rules require Bureau
of Competition staff to schedule conferences to discuss the scope of a
Second Request with the parties and also establish a procedure for the
General Counsel to review the request and promptly resolve any remaining
issues. Measures adopted include a process for seeking modifications or
clarifications of Second Requests, and expedited senior-level internal
review of disagreements between merging parties and agency staff;
streamlined internal procedures to eliminate unnecessary burdens and
undue delays; and implementation of a systematic management status check
on the progress of negotiations on Second Request modifications.
- Merger Investigation Best Practices. The FTC is
conducting a series of national public workshops regarding modifications
and improvements to the merger investigation process. The FTC will
solicit input from a broad range of interest groups, including corporate
personnel, outside and in-house attorneys, economists, and consumer
groups, on topics such as using more voluntary information submissions
before issuance of a Second Request, reducing the scope and content of
the Second Request, negotiating modifications to the Second Request, and
focusing on special issues concerning electronic records and accounting
or financial data.(12)
- Merger Remedies. Other "best practices" workshops
will solicit comments on merger remedies. Among the issues to be
addressed are structuring asset packages for divestitures, timing of
divestitures (i.e., up-front or after consummation), evaluating
the competitive adequacy of proposed buyers, and assessing the
preservation of competition after divestitures.(13)
C. Non-merger Enforcement.
broad consensus that non-merger enforcement policy should focus primarily
on horizontal agreements between or among competitors. While merger
activity remains relatively high, a decline from the unprecedented levels
of recent years has allowed us to restore resources to non-merger
enforcement, consistent with historical allocations between merger and
non-merger programs. In fiscal year 2001, the FTC opened 56 non-merger
investigations, more than double the number begun in the previous fiscal
year. We have opened an additional 51 investigations during this fiscal
year. The Commission presently has three non-merger matters in Part III
litigation,(14) and has obtained consent orders stopping anticompetitive practices in
an additional 10 matters, most involving health care.(15)
D. Focus in the Areas of Energy, Health Care and Intellectual
Property. Because of their great importance to consumers, the
Commission gives special attention to the energy and health care
industries, as well as antitrust issues related to intellectual property
1. Energy. Energy is vital to the entire
economy and represents a significant portion of total U.S. economic
output. The FTC has focused considerable resources on energy issues,
including conducting in-depth studies of evolving energy markets and
investigating numerous oil company mergers.
- Oil Merger Investigations. In recent years, the
FTC has investigated numerous oil mergers. Last year, the agency
reviewed four large oil mergers and analyzed competitive effects in a
host of individual product/geographic market combinations. When
necessary, the agency has insisted on remedial divestitures to cure
potential harm to competition. In Chevron/Texaco, the Commission
accepted a consent agreement that allowed the proposed $45 billion
merger to proceed but required substantial divestitures to cure the
possible anticompetitive aspects of the transaction in 10 separate
relevant product markets and 15 sections of the country comprised of
dozens of smaller relevant geographic markets.(16)
In Valero/Ultramar, the Commission obtained a settlement requiring
Valero to divest a refinery, bulk gasoline supply contracts, and 70
retail service stations to preserve competition.(17)
In Phillips/Conoco, the Commission has accepted for public comment a
proposed consent order that will, if made final, require the merged
company to divest two refineries and related marketing assets, terminal
facilities for light petroleum and propane products, and certain natural
gas gathering assets.(18)
In Phillips/Tosco, applying the same standards, the Commission
concluded that the transaction likely did not pose a threat to
competition and voted unanimously to close the investigation.(19)
- Study of Refined Petroleum Prices. Building on its
enforcement experience in the petroleum industry, the FTC is studying
the causes of the recent volatility in refined petroleum product prices.
During an initial public conference held in August 2001, participants
identified key factors, including increased dependency on foreign crude
sources, changes in industry business practices, restructuring of the
industry through mergers and joint ventures, and new governmental
regulations. This information assisted the agency in setting the agenda
for a second public conference in May 2002. The information gathered
through these public conferences will form the basis for a report to be
issued later this year.
- Gasoline Price Monitoring. The FTC also recently
announced a project to monitor wholesale and retail prices of gasoline.
FTC staff will inspect wholesale gasoline prices for 20 U.S. cities and
retail gasoline prices for 360 cities. Anomalies in the data will prompt
further inquiries and likely will alert the agency to the possibility of
anticompetitive conduct in certain parts of the country. It also will
increase our understanding of the factors affecting gasoline prices.
2. Anticompetitive Health Care Practices.
During the past year, the FTC has placed renewed emphasis on stopping
collusion and other anticompetitive practices that raise health care costs
and decrease quality.
- Antitrust Investigations Involving Pharmaceutical
Companies. The growing cost of prescription drugs is a
significant concern for patients, employers, and government. Drug
expenditures doubled between 1995 and 2000.(20)
In response, the FTC dramatically has
increased its attention to pharmaceutical-related matters in both merger
and non-merger investigations. The agency now focuses one-quarter of all
competition mission resources on this industry. We also have opened
increasingly more pharmaceutical-related investigations. In 1996, less
than 5 percent of new competition investigations involved
pharmaceuticals, while in 2001, the percentage of new investigations
involving pharmaceutical products was almost 25 percent.
- Mergers Affecting the Pharmaceutical Industry.
Last year, the Commission took action to restore competition in the
market for integrated drug information databases in a novel case
involving violations of both Sections 7 and 7A of the Clayton Act. This
case marked the first time the Commission sought disgorgement of profits
as a remedy in a merger case. The case resulted from the 1998
acquisition by Hearst Corporation of the Medi-Span integrated drug
information database business. Pharmacies, hospitals, doctors, and
third-party payors rely on such databases for information about drug
prices, drug effects, drug interactions, and eligibility for
reimbursement under various payment plans. At the time of the
acquisition, Hearst already owned First DataBank, Medi-Span's only
competitor. The Commission alleged that the acquisition created a
monopoly in the sale of integrated drug information databases, causing
prices to increase substantially to all database customers.(21)
We negotiated a settlement requiring Hearst to divest the Medi-Span
database and to disgorge $19 million in illegal profits, which will be
distributed to injured consumers.(22)
- Pharmaceutical Firms' Efforts to Thwart Competition from
Generic Drugs. In its non-merger enforcement cases, the FTC has
focused on efforts by branded drug manufacturers to slow or stop
competition from lower-cost generic drugs. While patent protection for
newly developed drugs sometimes limits the role of competition in this
industry, competition from generic equivalents of drugs with expired
patents is highly significant. The Congressional Budget Office reports
that consumers saved $8 to 10 billion in 1994 alone by buying generic
versions of branded pharmaceuticals.(23)
The first generic competitor typically enters the market at a
significantly lower price than its branded counterpart, and gains
substantial share from the branded product. Subsequent generic entrants
typically bring prices down even further.(24)
Anticompetitive "gaming" of certain provisions of the Hatch-Waxman
Act(25) to forestall generic entry has been a major focus of Commission
enforcement actions. FTC Hatch-Waxman abuse cases have fallen into three
(a) Agreements Not to Compete. The first category
involves agreements between manufacturers of brand-name drugs and
manufacturers of generics in which the generic firm allegedly is paid not
to compete. The Commission has settled three such cases, including a
recent settlement with American Home Products (AHP). That settlement
resolved charges that AHP entered into an agreement with Schering-Plough
Corporation to delay introduction of a generic potassium chloride
supplement in exchange for millions of dollars. An AHP generic would have
competed with Schering's branded K-Dur 20, used to treat low potassium
conditions, which can lead to cardiac problems.(26)
(b) Fraudulent "Orange Book" Listings. The second
category deals with unilateral conduct by branded manufacturers to delay
generic entry. Pursuant to the Hatch-Waxman Act, a branded drug
manufacturer must list any patent claiming its branded drug in the FDA's
"Orange Book." Companies seeking FDA approval to market a generic
equivalent of that drug before patent expiration must provide notice to
the branded manufacturer, which then has an opportunity to file a patent
infringement action. The filing of such an action within the statutory
time frame triggers an automatic 30-month stay of FDA approval of the
generic drug. Certain branded manufacturers have attempted to "game" this
regulatory structure by listing patents in the Orange Book improperly.
Such a strategy permits the company to abuse the Hatch-Waxman's stay
provision to block generic competition without advancing any of the Act's
procompetitive objectives. This spring, the Commission filed an action
against Biovail Corporation (Biovail) alleging that it had illegally
acquired a license to a patent and engaged in an anticompetitive patent
listing strategy with respect to its high blood pressure drug, Tiazac. The
matter was resolved through a consent order, which requires Biovail to:
(1) transfer certain rights in the acquired patent back to their original
owner; (2) terminate its infringement suit against the generic competitor,
thereby ending the 30-month stay; (3) refrain from any action that would
trigger another 30-month stay; (4) refrain from future improper Orange
Book listing practices; and (5) provide the FTC with prior notice of
future acquisitions of any patents it intends to list in the Orange Book.(27)
In January, the FTC also filed an amicus brief in pivotal
private litigation involving allegations of fraudulent Orange Book listing
In re Buspirone - which is the subject of continuing
litigation - involves allegations that Bristol-Myers Squibb Co. (BMS)
violated the antitrust laws by fraudulently listing a patent on its
branded drug, BuSpar, in the FDA's Orange Book, thereby foreclosing
generic competition. BMS argued that the conduct in question was covered
by the Noerr-Pennington doctrine - a legal rule providing
antitrust immunity for conduct that constitutes "petitioning" of a
governmental authority. In its amicus brief opposing Noerr
immunity, the Commission argued that submitting patent information for
listing in the Orange Book did not constitute "petitioning" the FDA and
that, even if it did, various exceptions to Noerr immunity
applied. The district court subsequently issued an order denying Noerr
immunity and adopting much of the Commission's reasoning.(29)
The Court's ruling does not mean that all improper Orange Book filings
will give rise to antitrust liability. An antitrust plaintiff still must
prove an underlying antitrust claim. The Buspirone decision
merely establishes that Orange Book filings are not automatically immune
from antitrust scrutiny.
(c) Agreements Between Generic Manufacturers. The
third category of cases involves agreements among manufacturers of generic
drugs. In our recent complaint against Biovail and Elan Corporation, plc (Elan),
the Commission alleged that the companies violated the FTC Act by entering
into an agreement that provided substantial incentives not to compete in
the market for the 30 mg and 60 mg dosage forms of generic Adalat CC.
Biovail and Elan are the only companies with FDA approval to manufacture
and sell 30 mg and 60 mg generic Adalat products. In October 1999, Biovail
and Elan entered into an agreement involving both companies' generic
Adalat products. Under their agreement, in exchange for specified
payments, Elan would appoint Biovail as the exclusive distributor of
Elan's 30 mg and 60 mg generic Adalat products and allow Biovail to profit
from the sale of both products. Our complaint alleged that the companies'
agreement substantially reduced their incentives to introduce competing 30
mg and 60 mg generic Adalat products. The proposed order, which has a
ten-year term, remedies the companies' alleged anticompetitive conduct by
requiring them to terminate the agreement and barring them from engaging
in similar conduct in the future.(30)
- Antitrust Investigations Involving Health Care Providers.
So far this year, the agency has reached settlements with five groups of
physicians for allegedly engaging in collusive practices that drove up
consumers' costs. In August, the Commission announced settlements with a
Dallas-Fort Worth-area physicians group and Denver-area physician
practice groups and their agent.(31)
The Commission alleged that the Dallas-Fort Worth group of more than
1,200 physicians entered into agreements to fix fees and to refuse to
deal with health plans except on collectively agreed-upon terms. The
Commission alleged that the Denver-area physician groups (comprised of
more that 80 physicians) used their agent to enter into similar
agreements to fix fees and to refuse to deal with payors except on
collectively agreed-upon terms. These settlements were patterned after
settlements that the Commission announced in May with two other
Denver-area physician organizations.(32)
Earlier this year, the Commission also settled charges that a group
of Napa County, California, obstetricians and gynecologists agreed to
fix fees and other terms of dealing with health plans and refused to
deal with health plans except on collectively determined terms. To
resolve the matter, the physicians agreed to refrain from engaging in
similar conduct in the future, and to dissolve the organization through
which they conducted their allegedly anticompetitive activity.(33)
The Commission's proposed and final orders put a stop to further
anticompetitive collusive conduct that harms employers, individual
patients, and health plans by depriving them of the benefits of
competition in the purchase of physician services.
- Generic Drug Study. In July, the Commission
released an industry-wide study focused on certain aspects of generic
drug competition under the Hatch-Waxman Amendments.(34)
The study examined whether the Commission's enforcement actions
against alleged anticompetitive agreements, which relied on certain
Hatch-Waxman provisions, were isolated examples or representative of
conduct frequently undertaken by pharmaceutical companies. The study
also examined more broadly how the process that Hatch-Waxman established
to permit generic entry prior to expiration of a brand-name drug
product's patents has worked between 1992 and 2000.(35)
- Workshop on Health Care and Competition Law and Policy.
On September 9 and 10, 2002, the Commission held a public workshop
focusing on the impact of competition law and policy on the cost,
quality, and availability of health care, and the incentives for
innovation in the field. Given the significance of health care spending
in the United States, it is important that competition law and policy
support and encourage efficient delivery of health care products and
services. Competition law and policy also should encourage innovation in
the form of new and improved drugs, treatments, and delivery options.
Developing and implementing competition policy for health care raises
complex and sensitive issues. The goal of this workshop was to promote
dialogue, learning, and consensus building among all interested parties
(including, but not limited to, the business, consumer, government,
legal, provider, insurer, and health policy/health services/health
3. Matters Involving the High-Tech Industry and
Intellectual Property Rights. The continuing development of
"high-tech" industries and the significance of intellectual property
rights influence our antitrust agenda. The U.S. economy is more
knowledge-based than ever. While the fundamental principles of antitrust
do not differ when applied to high-tech industries, or other industries in
which patents or other intellectual property are highly significant, the
issues are often more complex, take more time to resolve, and require
different kinds of expertise. To address these needs, we now have patent
lawyers on staff, and we sometimes hire technical consultants in areas
such as electrical engineering or pharmacology.
The standard at issue
involved a common form of computer memory used in a wide variety of
popular consumer electronic products, such as personal computers, fax
machines, video games, and personal digital assistants. The Commission's
complaint alleges that once the standard was adopted, Rambus was in a
position to reap millions in royalty fees each year, and potentially
more than a billion dollars over the life of the patents, all of which
would be passed on to consumers through increased prices for the
- Standards Setting. As technology advances, there will be
increased efforts to establish industry standards for the development
and manufacture of new products. While the adoption of standards is
often procompetitive, the standards setting process, which
involves competitors' meeting to set product specifications, can be an
area for antitrust concern. In a complaint filed in June, the Commission
has charged that Rambus, Inc., a participant in an electronics industry
standards-setting organization, failed to disclose - in violation of the
organization's rules - that it had a patent and several pending patent
applications on technologies that eventually were adopted as part of the
Because standard-setting abuses can harm robust and
efficiency-enhancing competition in high tech markets, the Commission
will continue to pursue investigations in this important area.(38)
Intellectual Property Hearings.
In February 2002, the FTC and the DOJ commenced a series of hearings on
Competition and Intellectual Property Law and Policy in the
- The hearings respond to
the growth of the knowledge-based economy, the increasing role in
antitrust policy of dynamic, innovation-based considerations, and the
importance of managing the intersection of intellectual property and
competition law to realize their common goal of promoting innovation.
During the hearings, business persons, consumer advocates, inventors,
practitioners, and academics have focused on:
- what economic learning reveals, and does not reveal, regarding the
relationships between intellectual property and innovation, and between
competition and innovation;
- "real-world" experiences with patents and competition;
- procedures and substantive criteria involved in prosecuting and
litigating patent claims;
- issues raised by patent pools and cross-licensing and by certain
- the implications of unilateral refusals to deal, patent settlements,
and licensing practices;
- international comparative law perspectives regarding the
competition/intellectual property interface; and,
- jurisprudential issues, including the role of the Federal Circuit.
- The hearings will conclude in October. A public report that
incorporates the results of the hearings, as well as other research, will
be prepared after the hearings.
A. Antitrust Exemptions
As a general matter, immunity from the antitrust laws is exceptional
That is because our
nation's economy is based on the premise that competition is the best
guarantor of the optimal mix of goods and services in terms of price,
quality, and consumer choice. The antitrust laws, therefore, are a
fundamental part of our economic system. The Supreme Court has repeated
many times that the antitrust laws are "the Magna Carta of free
Accordingly, there are few industries or competitive
situations in which the antitrust laws do not apply. In fact, there has
been a trend to deregulate industries and remove antitrust immunities
rather than to create more of them.(42)
Proponents of antitrust immunity frequently claim that
firms engaged in a particular industry or activity need to collaborate on
matters that have special value or importance to our economy, national
security, or other societal interests. They assert that compliance with
the antitrust laws will be overly burdensome for the industry, or that the
fear of antitrust liability will have a chilling effect on the activity
for which they seek immunity. They also frequently claim that an exemption
would only sanction conduct that would not violate the antitrust laws
anyway, and that an exemption would serve simply to clarify the law and
reassure everyone involved in the activity. They therefore assert that the
situation warrants special treatment.
We do not believe these reasons provide a sound basis
for an antitrust exemption. Antitrust analysis today is highly capable of
distinguishing between conduct that is unreasonable and harmful to
consumers, and that which has a legitimate justification. Antitrust law,
therefore, can accommodate whatever legitimate interests competitors have
in collaborating with each other. Further, there are many sources of
guidance that would enable firms to avoid antitrust concerns. They can
look to the many case precedents on collaborative conduct, interpretive
Guidelines, and antitrust counsel. Firms also can minimize uncertainty by
obtaining advisory opinions from the FTC and the DOJ before engaging in
the conduct for which they seek reassurance. With the assistance of
antitrust counsel, companies can make well-informed judgments about
whether a proposed activity will present antitrust risks. Therefore,
antitrust exemptions generally are not necessary.
exemptions have significant potential to be harmful. First, an antitrust
exemption for conduct that does not violate the antitrust laws inevitably
will lead to demands for more antitrust exemptions in other, similar
situations. That will gradually erode the fundamental principle that the
antitrust laws constitute one of the central pillars of a competitive
market economy. Second, an antitrust exemption for conduct that does not
violate the antitrust laws may create an erroneous perception that such
conduct actually may raise serious competitive concerns; the exemption can
create confusion or uncertainty as to whether that kind of conduct is
likely to violate the antitrust laws. Third, antitrust immunities that are
unnecessary, imprecise, or excessively broad may enable firms to engage in
collusive arrangements detrimental to consumers. An exemption can provide
a pretextual reason for parties inappropriately to discuss and collaborate
on non-exempt matters.(43)
Such conduct is difficult to detect and prosecute, and can hinder,
rather than facilitate, the important economic and security contributions
that it was hoped the particular industry would make. Therefore, we
believe that, in general, selective antitrust exemptions are unwise, as
well as unnecessary.(44)
B. Examination of State Action and Noerr-Pennington
Certain conduct that otherwise would violate the antitrust laws is
exempt from antitrust challenge. For example, the state action doctrine -
first articulated in Parker v. Brown(45)
- provides immunity for the regulatory conduct of state governments.
Likewise, the Noerr-Pennington doctrine - first articulated in
Eastern R.R. Presidents Conf. v. Noerr Motor Freight(46) and United Mine Workers of America v.
provides immunity for private parties' efforts to "petition" the
government. Understanding the proper scope of these exemptions -
consistent with, but not broader than, their underlying policy rationales
- has important consequences for consumers. Antitrust enforcers should
identify and prevent anticompetitive conduct that may resemble, but does
not constitute, protected activity. When the governing standard is
unclear, however, enforcement (and deterrence) can be problematic. Thus,
for example, the American Bar Association Antitrust Section's 2001 report
on antitrust policy recommended a reexamination of the scope of the state
It is sound antitrust policy to seek to limit the state action and
Noerr antitrust immunities to situations that fulfill their underlying
purposes. When properly applied, both of those immunities serve important
Constitutional interests. State action immunity is grounded in principles
of federalism and is intended to prevent antitrust enforcement from
interfering with legitimate state regulatory activities. Noerr immunity,
on the other hand, is grounded in First Amendment principles and is
intended to protect a citizen's right to petition the government for the
redress of grievances.
New Task Forces at the FTC are examining both the state action and
Noerr-Pennington exemptions. Both Task Forces are considering a variety of
actions, including antitrust enforcement, amicus briefs, and competition
- State Action Task Force. The State Action Task Force is conducting
a careful analysis of existing case law on the scope of state action
immunity. The Task Force has observed that some courts have applied the
doctrine overly broadly, thereby immunizing the anticompetitive conduct
of parties acting in their own interest, rather than the interest of
"the state itself." An overly broad application can be especially
problematic when the party purportedly acting pursuant to a delegation
of state authority is a private market participant with strong
incentives to restrain trade. The Task Force currently is working to
clarify the state action doctrine to address such problems by, for
example, advocating for more rigorous enforcement of Midcal's "clear
articulation" and "active supervision" requirements, as well as express
recognition of the market participant exception.
- Noerr-Pennington Task Force. The Noerr-Pennington Task Force is
conducting a similar analysis of existing case law regarding Noerr-Pennington
immunity. As in the state action context, the Task Force has observed
that some courts have applied the doctrine overly broadly. In some
instances, parties have been granted immunity in spite of the fact that
the anticompetitive conduct at issue had no "petitioning" component
whatsoever. In other instances courts have immunized abusive tactics,
such as repetitive lawsuits and misrepresentations, that clearly were
intended to delay a competitor's entry or raise its costs, rather than
to legitimately petition the government. The Task Force currently is
working to clarify the Noerr doctrine to address such problems by, for
example, advocating for express recognition of an independent
misrepresentation exception and application of the Walker Process
exception outside the patent prosecution context. Notably, the Task
Force played an active role in preparation of the Commission's amicus
brief in In re Buspirone, discussed above.
B2Bs and FTC E-Commerce Initiatives
A. B2B Marketplaces
Business-to-business electronic marketplaces, which use the Internet to
connect businesses to each other, represent an important forum for
commercial activity. In June 2000, the FTC hosted a public workshop on
"Competition Policy in the World of B2B Electronic Marketplaces."(49)
In October 2000, FTC staff released a report based on its learning from
A second workshop was held in May 2001 to further explore these issues.(51)
In general, the Commission views positively the development of B2Bs
because of their potential to generate significant efficiencies for our
economy, winning for customers lower prices, improved quality and greater
innovation. At the same time, we are aware of B2Bs' potential to inflict
competitive harm. By their nature, B2Bs either bring together competitors
in a collaborative environment, or constitute vertical collaborations
between suppliers and purchasers in an industry or market. These
arrangements may facilitate anticompetitive conduct, either in the markets
for the goods and services traded on B2Bs (or derived from those traded on
B2Bs), or in the market for marketplaces themselves. Despite B2Bs'
innovative nature and their potential to revolutionize certain markets,
however, the anticompetitive concerns they raise are not new; indeed, B2Bs
are amenable to traditional antitrust analysis. The analysis of any B2B is
highly particularized, depending heavily on such things as the B2B's
operating rules, composition, exclusivity, and interoperability with other
B2Bs. To date, the Commission has not formally taken enforcement action
against any B2Bs since it closed its investigation of Covisint(52)
in September 2000, but we stand ready to take such action if an
appropriate case arises.
B. FTC E-Commerce Initiatives
- Internet Task Force. In August 2001, an Internet Task Force began
to evaluate regulations and potentially anticompetitive business
practices that could impede e-commerce. The Task Force grew out of the
already-formed State Action Task Force, which had been analyzing the
competitive effects of state regulations generally, and out of the FTC's
longstanding interest in the competition aspects of e-commerce. Over the
past year, the Task Force has met with numerous industry participants
and observers, including e-retailers, trade associations, and leading
scholars, and reviewed relevant literature. The Task Force discovered
that many states have enacted regulations that have the effect of
protecting existing bricks-and-mortar businesses from new Internet
competitors. The Task Force also received reports of private companies
curtailing e-commerce by employing potentially anticompetitive tactics,
such as by collectively pressuring suppliers or dealers to limit sales
over the Internet. To date, three advocacy filings have resulted in
large part from the Task Force's efforts: (1) a joint FTC/DOJ comment
before the North Carolina state bar expressing concerns about the impact
on consumers of ethics opinions requiring that an attorney be physically
present for all real estate closings and refinancings; (2) a joint
FTC/DOJ comment before the Rhode Island legislature on similar
requirements in a real estate bill; and (3) a staff comment before the
Connecticut Board of Opticians, which is considering additional
restrictions on out-of-state and Internet contact lens sellers.(53)
- Internet Competition Workshop. In October, the Commission will hold a
public workshop on possible efforts to restrict competition on the
Internet. The workshop will include panel discussions to address certain
specific industries that are important to consumers and that have
experienced some growth in commerce via the Internet, but where
competition may have been hampered by state regulations or potentially
anticompetitive business practices. For example, the workshop will include
panels on some or all of the following industries: retailing, automobiles,
cyber-charter schools, real estate, health care, wine sales, auctions,
contact lenses, and caskets. The Internet Task Force expects that the
workshop will (1) enhance the Commission's understanding of these issues,
(2) help educate policymakers about the effects of overly restrictive
state regulations, and (3) help educate private entities about the types
of business practices that may or may not be viewed as problematic.
International Activities: New Initiatives, Enforcement
Because competition increasingly takes place in a worldwide market,
cooperation with competition agencies in the world's major economies is a
key component of our enforcement program. Given differences in laws,
cultures, and priorities, it is unlikely that there will be complete
convergence of antitrust policy in the foreseeable future. Areas of
agreement far exceed those of divergence, however, and instances in which
our differences will result in conflicting results are likely to remain
rare. The agency has increased its cooperation with agencies around the
world, both on individual cases and on policy issues, and is committed to
addressing and minimizing policy divergences.
- ICN and ICPAC. Last fall, the FTC, the DOJ, and twelve other
antitrust agencies from around the world launched the International
Competition Network (ICN). The ICN is an outgrowth of a recommendation of
the International Competition Policy Advisory Committee (ICPAC) that
competition officials from developed and developing countries convene a
forum in which to work together on competition issues raised by economic
globalization and the proliferation of antitrust regimes. ICN provides a
venue for antitrust officials worldwide to work toward consensus on
proposals for procedural and substantive convergence on best practices in
antitrust enforcement and policy. Sixty-one jurisdictions already have
joined the ICN, and we are working on initial projects on mergers and
- Free Trade Agreement of the Americas. The FTC is working with the
nations of our hemisphere to develop competition provisions for a Free
Trade Agreement of the Americas.
- OECD. The FTC is participating in the continuing work of the OECD on,
among other things, merger process convergence, implementation of the OECD
recommendation on hard-core cartels (e.g., price-fixing agreements), and
- Technical Assistance. For the past ten years, the FTC has assisted
developing nations that have made the commitment to market and commercial
law reforms. With funding principally from the U.S. Agency for
International Development, and in partnership with the DOJ, about thirty
nations have received technical assistance with development of their
competition and consumer protection laws. Currently, the technical
assistance program is active in South and Central America, South Africa,
and Southeastern Europe. The program emphasizes the development of
investigative skills, and relies on a combination of resident advisors,
regional workshops, and targeted short-term missions. These activities
have enabled a large number of career staff to share their expertise,
although great care is taken to avoid any intrusions on time and planning
for domestic enforcement projects. Future plans are focused on expanding
this reimbursable program to the former Soviet Union and to Asia.
Mr. Chairman and Members of the Subcommittee, we appreciate this
opportunity to provide an overview of the Commission's efforts to maintain
a competitive marketplace for American businesses and consumers. We
believe that the Commission's antitrust enforcement has demonstrable
benefits for consumers and the American economy - benefits that far
outweigh the resources allocated to maintaining our competition mission.
We would be pleased to respond to any questions you may have.
1. The written statement represents the views of the
Federal Trade Commission. My oral presentation and responses are my own
and do not necessarily reflect the views of the Commission or of any other
15 U.S.C § 18a, as amended, Pub. L. No
106-553, 114 Stat. 2762 (2000).
See 15 U.S.C. § 18a, as amended, Pub. L. No.
106-553, 114 Stat. 2762 (2000).
MSC Software Corp., Docket No. 9299 (Oct. 10,
2001) (complaint issued) (alleging that two MSC acquisitions violated
MSC Software Corp., Docket No. 9299 (August
14, 2002) (proposed consent order accepted for placement on public record
MSC Software Corp., Docket No. 9299 (Oct. 10,
2001) (complaint issued) (involving engineering software); Chicago
Bridge Iron Co., Inc., Docket No. 9300 (Oct. 25, 2001) (complaint issued)
(pertaining to field-erected specialty industrial storage tanks).
7. Press Release, FTC Authorizes Suit to Block Joint
Acquisition of Seagram Spirits and Wine by Diageo PLC and Pernod Ricard
S.A. (Oct. 23, 2001), available at <http://www.ftc.gov/opa/2001/10/diageo.htm>.
FTC v. Libbey, Inc., Civ. Act. No. 02-0060 (RBW) (Memorandum Opinion) (D.D.C.
Apr. 22, 2002). (granting FTC's request for a preliminary injunction).
Release, FTC to Challenge DGF Stoess's Proposed Acquisition of Leiner
Davis (Jan. 15, 2002), available at <http://www.ftc.gov/opa/2002/01/gelatin.htm>.
Press Release, FTC Authorizes Injunction to Pre-empt Meade Instruments'
Purchase of All, or Certain Assets, of Tasco Holdings, Inc.'s Celestron
International (May 29, 2002), available at <http://www.ftc.gov/opa/2002/05/meadecelestron.htm>.
Press Release, FTC Seeks to Block Cytyc
Corp.'s Acquisition of Digene Corp. (June 24, 2002), available at <http://www.ftc.gov/opa/2002/06/cytyc_digene.htm>.
12. See Press
Release, FTC Initiates "Best Practices Analysis" for Merger Review Process
(Mar. 15, 2002), available at <http://www.ftc.gov/opa/2002/03/bcfaq.htm>.
14. Polygram Holding, Inc., Docket No., 9298 (June 28, 2002)
(Initial Decision), available at <http://www.ftc.gov/os/2002/06/polygramid.pdf>;
Schering Plough Corp., Docket No. 9297 (July 2, 2002) (Initial Decision),
available at <http://www.ftc.gov/os/caselist/d9297.htm>; Rambus
Inc., Docket No. 9302 (June 18, 2002) (complaint), available at <http://www.ftc.gov/os/2002/06/rambuscmp.htm>.
15. Warner Communications Inc., Dkt.
No., 4025 (consent order) (Sept. 21, 2001); Schering-Plough Corp., Dkt.
9297 (Apr. 5, 2002) (consent order as to American Home Products); Biovail
Corp., File No. 011-0094 (Apr. 23, 2002) (proposed consent order accepted
for placement on public record for comment); Physician Integrated Servs.
of Denver, Inc., Dkt. No. 4054 (July 19, 2002) (consent order); Aurora
Associated Primary Care Physicians, L.L.C., Dkt. No. 4055 (July 19, 2002)
(consent order); Obstetrics and Gynecology Med. Corp. of Napa Valley, Dkt.
No. 4048 (May 17, 2002) (consent order); Biovail Corp. and Elan Corp.
PLC., Dkt. No., 4057 (Aug. 20, 2002) (consent order); System Health
Providers, File No. 011-0196 (Aug. 20, 2002) (proposed consent order
accepted for placement on public record for comment); Professionals in
Women's Care, File No. 011-0175 (Aug. 20, 2002) (proposed consent order
accepted for placement on public record for comment); and American
Institute for Conservation of Historic and Artistic Works, File No.
011-0244 (Sept. 10, 2002) (proposed consent order accepted for placement
on public record for comment).
Chevron Corp./Texaco Inc., Docket No. C-4023
(Jan. 2, 2002) (consent order).
Valero Energy Corp./Ultramar Diamond Shamrock
Corp., Docket No. C-4031 (Feb. 19, 2002) (consent order).
Conoco Inc./ Phillips Petroleum Company, File
No. 0211-0040 (August 30, 2002) (proposed consent order accepted for
placement on public record for comment).
Phillips Petroleum Corp./Tosco Corp., File
No. 011-0095 (Sept. 17, 2001) (Statement of the Commission).
Health Expenditures, by Source of Funds and Type of Expenditures, Health
Care Financing Administration, available at <http://www.hcfa.gov/stats/nhe-oact/tables/t3.htm>.
21. FTC v. The Hearst Trust, The Hearst Corp., and
First DataBank, Inc., Civ Act. No.1:01CV00734 (D.D.C. Apr. 5, 2001)
FTC v. Hearst,
Civ. Act. No. 1:01CV00734 (D.D.C. Nov. 9, 2001) (Stipulation for Entry of
Final Order and Stipulated Permanent Injunction).
Budget Office, How Increased Competition from Generic Drugs Has Affected
Prices and Returns in the Pharmaceutical Industry (July 1998), available
Food, Drug, and Cosmetics Act, 21 U.S.C. § 301 et seq. The Hatch-Waxman
amendments were contained in the Drug Price Competition and Patent
Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (codified at 15 U.S.C. §§ 68b, 68c, 70b; 21 U.S.C. §§ 301 note, 355, 360cc; 28 U.S.C. §
2201; 35 U.S.C. §§ 156, 271, 282 (1984)).
Corp., Dkt. 9297 (Apr. 2, 2002) (consent order as to American Home
File No. 011-0094 (Apr. 23, 2002) (proposed consent order accepted for
placement on public record for comment).
In re Buspirone
Patent Litigation/In re Buspirone Antitrust Litigation,
Memorandum of Law of Amicus Curiae the
Federal Trade Commission in Opposition to Defendant's
Motion to Dismiss, available at <http://www.ftc.gov/os/2002/01/busparbrief.pdf>.
In re Buspirone,
185 F. Supp. 2d 363 (S.D.N.Y. 2002).
and Elan Corp. PLC., Dkt. No., 4057 (Aug. 20, 2002) (consent order).
Providers, File No. 011-0196 (Aug. 20, 2002) (proposed consent order
accepted for placement on public record for comment); Professionals in
Women's Care, File No. 011-0175 (Aug. 20, 2002) (proposed consent order
accepted for placement on public record for comment).
Integrated Servs. of Denver, Inc., Dkt. No. 4054 (July 19, 2002) (consent
order); Aurora Associated Primary Care Physicians, L.L.C., Dkt. No. 4055
(July 19, 2002) (consent order).
Gynecology Med. Corp. of Napa Valley, Dkt. No. 4048 (May 17, 2002)
Generic Drug Entry Prior to Patent
Expiration: An FTC Study (July 2002), available at <http://www.ftc.gov/opa/2002/07/genericdrugstudy.htm>.
65 Fed. Reg. 61334 (Oct. 17, 2000); 66 Fed. Reg. 12512 (Feb. 27, 2001).
Rambus Inc., Dkt. No. 9302 (June 18, 2002)
(complaint), available at <http://www.ftc.gov/os/2002/06/rambuscmp.htm>.
In 1996, the FTC brought a similar case
against Dell Computer, alleging that Dell had failed to disclose that it
had an existing patent on a personal computer component that was adopted
as the standard by a video electronics group. Dell Computer Co., Dkt. No.
C-3658 (May 20, 1996) (consent order) (Commissioner Azcuenaga dissenting).
See 66 Fed. Reg. 58146 (Nov. 20, 2001).
See generally, Aba Section of Antitrust Law, Antitrust
Law Developments 1135 (4th ed. 1997) ("With few exceptions, the
antitrust laws apply to all industries."); cf. Silver v. New York Stock
Exchange, 373 U.S. 341 (1963) (implied antitrust exemptions are not
See, e.g., United States v. Topco Associates,
Inc., 405 U.S. 596, 610 (1972).
For example, section 601(b)(2) of the Telecommunications
Act of 1996 repealed the FCC's ability to confer immunity to telephone
company mergers that were submitted to the FCC for review, and the
Department of Transportation's authority to approve domestic airline
mergers expired in 1989 pursuant to 49 U.S.C. app §1551 (1988); such
mergers are now subject to ordinary application of the antitrust laws.
43. Any meeting among competitors, regardless of whether an
antitrust exemption applies, carries some risk that the discussion may
spill over into competitively sensitive matters. An antitrust exemption,
however, may be perceived as providing some shelter for firms inclined to
discuss off-limits topics, particularly when there is some interpretive
flexibility as to what subject matters are reasonably "related to" the
objectives of the legislation.
44. We are aware, of course,
that there have been rare instances in which Congress enacted statutory
grants of immunity for joint action of competitors. In those situations,
the exemption typically applied to specific industries or activities that
were subject to a special regulatory regime, or to a specific transaction
or agreement that had been approved by a federal agency, again usually in
the context of a regulated industry. Prior approval of an agreement by a
federal agency has not been required when the scope of the immunity was
very limited, but broader grants of immunity have been accompanied by
strict controls on the development and implementation of agreements.
Without such strict limits, the dangers of antitrust exemptions are even
317 U.S. 341 (1943).
365 U.S. 127 (1961).
U.S. 657 (1965).
American Bar Association Section of Antitrust
Law, The State of Antitrust Enforcement - 2001, Report of the Task
Force on the Federal Antitrust Agencies - 2001, 42 (2001), available at <http://www.abanet.org/antitrust/antitrustenforcement.pdf>.
49. Materials related to the
workshop are available at <http://www.ftc.gov/bc/b2b/index.htm>.
Entering the 21st Century:
Competition Policy in the World of B2B Electronic Marketplaces, A Report
by the Federal Trade Commission Staff (October 2000), available at
Materials related to the workshop are
available at <http://www.ftc.gov/opp/ecommerce/index.htm>.
Release, FTC Terminates HSR Waiting Period for Covisint B2BVenture
(September 11, 2000), available at <http://www.ftc.gov/opa/2000/09/covisint.htm>.
Letter from Timothy J. Muris, Chairman,
Federal Trade Commission and Charles A. James, Assistant Attorney General
(Antitrust), Department of Justice, to The Honorable John B. Harwood,
Speaker of the Rhode Island House of Representatives (regarding proposed
bill H. 7462, Restricting Competition From Non-Attorneys In Real Estate
Closing Activities) (Mar. 29, 2002); Letter from Timothy J. Muris,
Chairman, Federal Trade Commission and Charles A. James, Assistant
Attorney General (Antitrust), Department of Justice, to Ethics Committee,
North Carolina State Bar (regarding North Carolina State Bar Opinions
Restricting Involvement of Non-Attorneys in Real Estate Closings and
Refinancing Transactions) (Dec. 14, 2001); and Comments of The Staff of
the Federal Trade Commission, Intervenor, In Re: Declaratory Ruling
Proceeding On the Interpretation and Applicability of Various Statutes and
Regulations Concerning the Sale of Contact Lenses (Ct. Bd. Of
Examiners for Opticians, Mar. 27, 2002).