Competition Mission

Premerger Notification Program
Mergers and Joint Ventures Program
Nonmerger Program

The Competition Mission is based upon the fundamental premise of the antitrust laws that competition brings the best products and services at the lowest prices, spurs efficiency and innovation, and strengthens the U.S. economy. Unreasonable restraints on competition harm everyone, from consumers to businesses to workers. It is the Commission's job under its Competition Mission to ensure that markets function competitively by eliminating unreasonable competitive restraints, preventing anticompetitive mergers and acquisitions, and encouraging governmental reliance on market solutions.

Mission Focus

Given the Commission's flat resources in the midst of a growing economy, the challenges to accomplishing this Mission are formidable. During fiscal year 1996, the Competition Mission focused its limited resources on bringing enforcement actions that make a positive difference in consumers' lives, minimizing the burden Commission actions place on business, and continuing to refine the agency's enforcement policies to account for dynamic changes in both the economy and antitrust analysis.

Making a Difference in Consumers' Lives.--The Competition Mission has focused its enforcement actions in markets and industries that matter most to consumers. In fiscal year 1996, more than 80 percent of the Mission's resources, measured by staff hours devoted to large cases, were at work in six key areas of the economy: health care, pharmaceuticals, information and technology, energy, consumer goods and services, and defense (where the consumer as taxpayer is the beneficiary). The agency's enforcement actions against proposed mergers in these key industries have made a difference. The Commission's actions:

• Prevented increases in health care costs paid by U.S. businesses for their employees. The Commission forced abandonment of the proposed merger of Rite Aid Corporation and Revco D.S., Inc., the nation's first and second largest retail drug store chains, when an investigation revealed that the merger would have a significant adverse impact on health care costs.
• Saved consumers nationwide as much as $30 million annually for purchases of diltiazem, a drug used in the treatment of angina and hypertension. A Commission consent order required divestitures in the merger of Hoechst AG and Marion Merrell Dow, Inc., to ensure continued competition in the market for diltiazem as well as for other drugs used in treatments for tuberculosis and ulcerative colitis.
• Ensured for consumers and businesses the benefits of competitive prices for natural gas in the Salt Lake City area. Questar Corporation dropped its effort to acquire a 50-percent interest in Kern River Gas Transmission Company after the Commission authorized a preliminary injunction over concerns that Questar was trying to thwart the benefits of deregulation by buying its only competitor.
• Protected prices and program choice for viewers of cable television. Time Warner, Inc., and Turner Broadcasting System, Inc., both major players in the cable television industry, agreed to a major restructuring of their proposed merger in response to the Commission's concerns that, as originally structured, the merger could impede competition by other cable programmers, thus raising prices, and also could raise entry barriers for other forms of video delivery (for example, direct broadcast satellite).
• Helped to ensure that Americans get the most for their tax dollars by protecting competition in defense industries. After a Commission challenge, Lockheed Martin Corporation agreed to restructure its acquisition of Loral Corporation to prevent a loss in competition in the markets for air traffic control systems, satellite systems, fighter aircrafts, and unmanned aerial vehicles.

Commission actions in nonmerger cases, although often less visible than faster paced merger reviews, also addressed anticompetitive conduct that threatened consumer welfare. The Commission's actions:

• Protected innovation and pricing in the computer industry. In Dell Computer, the Commission complaint alleged that Dell abused a computer industry standard-setting process in a way that threatened to prevent rival manufacturers from making use of an advance in technology and to raise their costs. A Commission consent order addressed these concerns by preventing Dell from abusing the standard-setting process. As the first federal law enforcement action against a firm for abuse of the standard-setting process, Dell Computer stands as an important precedent for maintaining the integrity and procompetitive possibilities of standard setting.
• Challenged practices that could drive up the price of toys. The Commission issued an administrative complaint against Toys R Us, alleging that the nation's number one toy retailer entered into agreements with manufacturers to prevent them from selling popular toys to warehouse clubs that would sell the toys more cheaply than Toys R Us.
• Opened up competition in the pricing of prescription drugs purchased through pharmacy benefit plans. In Rx Care of Tennessee, Inc., the Commission's consent order strikes down the use of "most favored nation" clauses that discourage discounting and thus restrict price competition.

Minimizing the Burden on Business.--While the Commission looks out for consumers' interests, it attempts to do so with the least possible burden on business. Obviously, the Commission cannot avoid all burdens on business if it is to investigate and enforce the law. The agency constantly reassesses its policies and procedures, however, to see where it can streamline them or eliminate any unnecessary requirements. During fiscal year 1996, for example, the Commission:

• Exempted five classes of transactions from the Hart-Scott-Rodino (HSR) premerger notification reporting requirements that, experience had indicated, were unlikely to pose a threat to competition. These exemptions reduced by approximately 10 percent the number of reportable transactions.
• Decreased the rate of "second requests" for documents through use of a more thorough preliminary merger investigation, made possible by expediting the clearance process between the Commission and the Department of Justice to determine which of the two antitrust agencies would review a proposed merger, which gives staff more time to conduct a preliminary merger investigation. From fiscal year 1995 to fiscal year 1996, the percentage of Commission preliminary merger investigations in which second requests were issued dropped by a third, from 23 to 15 percent.
• Expedited administrative trial proceedings through adoption of a set of procedural rule changes. These changes, which will apply to all Commission actions, including those that involve competition issues, establish new and shorter deadlines, streamline discovery, and speed up trials.

Forward-Looking Antitrust Enforcement.--On the brink of the 21st century, the Commission is well aware of changes brought on by rapid technological development and increased globalization of the marketplace. The agency continues to refine its analysis to adapt to these changes and to structure the least intrusive enforcement that effectively protects free and competitive markets. During fiscal year 1996, the Commission:

• Exercised its special competence as a deliberative body to deal with complex competition issues and held 23 days of hearings (with testimony from 140 witnesses, including economic and legal scholars, business executives, consumer groups, state enforcement authorities, and foreign enforcement authorities) on changes in the global economy and the appropriate role of antitrust enforcement and analysis. The staff report that followed includes an analysis of the debate and recommendations on how to implement the Competition Mission in light of these changes.
• Provided public guidance on competition in the fast-changing health care industry by issuing jointly with the Department of Justice the 1996 Statements of Antitrust Enforcement Policy in Health Care.
• Considered the critical importance in merger analysis of "innovation markets," or the competition between companies in the research and development of new products that may not be available to consumers for more than a decade. For example, the consent agreement in the proposed merger of The Upjohn Company and Pharmacia Aktiebolag, made final in fiscal year 1996, required the divestiture of a chemotherapy drug still under development for colorectal cancer, the second most common form of cancer.
• Continued its commitment to work with state antitrust agencies to leverage antitrust resources. The Commission has engaged in several joint investigations with the states, enabling it to conduct thorough investigations with fewer Commission resources, and reducing the burden on business by allowing joint interviews and joint requests for documents and information.

Programs Under the Competition Mission

The Commission implements its Competition Mission through three major program areas: the Hart-Scott-Rodino (HSR) Premerger Notification Program, the Mergers and Joint Ventures Program, and the Nonmerger Program.

Premerger Notification Program

Through its implementation and enforcement of the HSR Act, the Premerger Notification Program protects consumers from those mergers that are anticompetitive. Prior to enactment of the Act, mergers often were consummated and operations combined before the antitrust agencies learned of the transactions. It was then difficult, if not impossible, to "unscramble the eggs" and restore the benefits of a competitive market. The HSR Act requires entities that meet certain size requirements and that plan significant acquisitions to file notice with the Commission and the Antitrust Division of the Department of Justice. Consummation of the merger must be delayed for statutorily prescribed periods of time. The HSR Act thus allows the antitrust agencies to analyze and take action against anticompetitive mergers before the mergers actually take place.

The Program strives to minimize the burden on businesses that are required to comply with the HSR Act. To improve voluntary compliance, the Commission's Premerger Office provides assistance to filers in understanding the Act's requirements, primarily through responses to tens of thousands of telephone inquiries annually. As stated, the Commission, in cooperation with the Department of Justice, also adopted new rules during fiscal year 1996 to exempt certain kinds of transactions that are unlikely to have anticompetitive effects.

Fiscal year 1996 marked the 20th anniversary of the passage of the HSR Act. The Act has become an essential component of antitrust enforcement. In particular, the Commission's effective enforcement of the Act has made parties to mergers and acquisitions more certain of the timing of stages along the investigation path, enabling them to schedule business activities with greater confidence. Similarly, the Commission can make more reliable enforcement decisions because it has access to all relevant data concerning the competitive effect of a merger. This increased certainty has led to better decisions on both sides and has also led to a process that facilitates negotiated outcomes. In sum, the Premerger Program is an important example of efficient antitrust enforcement that protects the consumer's interest in a competitive market while minimizing costs to business.

Premerger Enforcement Activities

During fiscal year 1996, the number of premerger filings increased for the fifth year in a row and totaled 3,087, marking the first time in the history of the Program that filings exceeded 3,000. This represents a 10-percent increase over the number reported during fiscal year 1995 and a 102-percent increase over the 1,529 filings recorded in fiscal year 1991.

The number of filings was at a record level even though the Commission, in an effort to eliminate filings on transactions that are unlikely to have a significant anticompetitive impact, adopted five new rules exempting certain types of transactions from the reporting and waiting period requirements. The new rules, which reduce the number of reportable transactions by an estimated 10 percent, cover transfers of goods or realty in the "ordinary course of business," the acquisition of oil and natural gas reserves valued at $500 million or less, the acquisition of coal reserves valued at $200 million or less, the acquisition of securities whose underlying value is represented solely by those kinds of exempt assets, and acquisitions by certain investors of rental real property.

Other premerger enforcement activities included responding to an estimated 40,000 phone calls seeking information concerning reportability of transactions under the HSR Act and the details involved in completing and filing premerger forms.

The HSR Act can ensure swift and efficient review of proposed mergers only if the parties comply with the Act's requirements and provide complete information. When parties fail to comply with these requirements, the Act provides for the imposition of civil penalties. During fiscal year 1996, the Commission collected a record $7.65 million in civil penalties after obtaining consent decrees for violations of the HSR Act. In these settlements:

• Sara Lee Corporation paid $3.10 million, the single largest civil penalty ever for an HSR violation;
• Automatic Data Processing, Inc., paid $2.97 million;
• Foodmaker, Inc., paid $1.45 million; and
• Titan Wheel International, Inc., paid $0.13 million.

Mergers and Joint Ventures Program

The Mergers and Joint Ventures Program seeks to prevent mergers and acquisitions that are likely to harm competition and consumers. The Program also investigates interlocking directorates among competing firms that may have similar anticompetitive effects. The Program has three essential components:

• Detecting potentially harmful mergers before they occur by monitoring merger activity and screening all significant mergers, in conjunction with the Premerger Notification Program;
• Investigating those mergers that the screening process has targeted for further inquiry; and
• Taking appropriate action to prevent (or undo) those mergers or portions of mergers that, after investigation and analysis, appear likely to substantially lessen competition.

In the case of some mergers, the Commission can act to prevent harm to consumers and competition only by preventing the merger or, in rare cases, by undoing it. In many other cases, however, competition can be preserved by more narrowly tailored relief that still allows the overall merger or transaction to proceed. Determining the kind of relief necessary entails investigations that are designed to answer fundamental questions about the merger and the affected relevant product and geographic markets:

• Is the merger likely to result in a lessening of actual or potential competition, increase the market power of the merging firms, and lead to market dominance or a significant increase in the likelihood of collusion?
• Is the merger likely to increase barriers to entry or expansion or to foster interdependent conduct among firms?

To protect consumers from mergers that may substantially lessen competition, the most efficient and cost-effective strategy is to prevent mergers before they occur. The Commission has authority under Section 13(b) of the Federal Trade Commission Act to seek a preliminary injunction in federal district court to stop a merger, but more often, it resolves the competitive problem through consent agreements with the merging parties. In addition to injunctive relief, the Commission may rely on administrative remedial powers to restore competition lost as a result of a merger. In either case, the principal (though not exclusive) remedy is the prompt divestiture of assets that are sufficient to restore competition.

Merger and Joint Ventures Enforcement Activities

During fiscal year 1996, Commission staff opened investigations on 55 transactions, including 18 initial-phase investigations (four of these were later converted to full phase) and 37 full-phase investigations. The Commission issued requests for additional information or documentary materials under the HSR Act ("second requests") for 36 of these proposed transactions. Preliminary injunction cases were authorized in three transactions. Two of these transactions, Questar/Kern River and Rite Aid/Revco (both highlighted above), were subsequently abandoned. In the third transaction, the proposed merger of Butterworth Hospital and Blodgett Memorial Medical Center, a U.S. District Court denied the Commission's motion for a preliminary injunction, but the case was subsequently appealed to the U.S. Court of Appeals for the Sixth Circuit and will be litigated in an administrative proceeding. Finally, parties abandoned four proposed mergers after the Commission issued second requests for information.

The Commission's merger investigations included a number of complex and significant transactions in the defense, health care, and telecommunications industries where Commission efforts helped protect competition in the midst of intense restructuring as a result of rapidly changing economic forces and technology. Notable examples include the merger between Time Warner, Inc., and Turner Broadcasting System, Inc., and the proposed, but later abandoned, merger between Rite Aid Corporation and Revco D.S.

During the year, the Commission also accepted for public comment 21 new consent agreements (of which 15 were also finalized during the year) in the following industries:

Health care -- 4
Industrial applications -- 4
Defense industry -- 4
Funeral homes -- 3
Supermarkets and food -- 3
Communications -- 1
Oil and gas -- 1
Manufacturing -- 1

The Commission continued to improve the analysis of, and the remedies for, the anticompetitive effects of proposed mergers and made significant gains in achieving divestitures more quickly. During fiscal year 1996, the average time between the issuance of a final consent order and divestiture approval by the Commission was approximately 10 months, a decrease of 5 months from fiscal year 1995. Also, Competition Mission attorneys began participating in a joint task force in cooperation with Commission economists and Department of Justice staff to examine how the competitive analyses of mergers should take into account any probable cost savings from the merger.

Finally, the Commission continued its commitment to work with state antitrust agencies to coordinate antitrust enforcement. The Commission's regional offices have particularly close working relationships with state antitrust enforcers. Staff from both the regional offices and the Bureau of Competition conduct joint and parallel antitrust investigations with the states. Last year, the regional offices hosted four "Common Ground" conferences, bringing together representatives of state Attorneys General offices, several Commission regional offices, and the Department of Justice. The conferences were designed to discuss substantive antitrust issues and to explore areas where the state and federal agencies could work together to promote consumer welfare. Plans are underway for future conferences.

Nonmerger Program

The Commission's Nonmerger Program includes three areas of potential anticompetitive conduct: horizontal restraints, distributional arrangements, and single firm violations. The Horizontal Restraints Program is directed at investigating collusive or other collaborative activities involving direct competitors that may harm consumers, such as price fixing. Such activities can harm consumers by raising prices and reducing the quality of available goods and services. Although some agreements among competitors, such as standard setting and the promulgation of legitimate ethical codes, can be procompetitive and even essential, such agreements also can be abused in a way that harms consumers.

The Distributional Restraints Program seeks to protect consumers from anticompetitive consequences that arise from certain vertical agreements among firms in the chain of distribution ­ from producers to distributors to retailers. An agreement on resale price between firms in a vertical relationship is an example of a distributional practice that has a harmful effect on consumers and is considered per se illegal. The Commission investigates distributional restraints carefully to avoid challenging vertical agreements that may benefit consumers.

The Single Firm Program seeks to prevent firms from creating or maintaining market power through conduct that is injurious to consumer welfare. A single firm with market power can use various anticompetitive practices to reduce output below the competitive level and to maintain supracompetitive prices, thereby injuring consumers and misallocating resources. While neither the existence of market power nor the attempt to gain market share is unlawful in itself, achieving market power by practices that exclude competition is unlawful. The principal challenge of the Single Firm Program is to distinguish anticompetitive conduct from conduct that merely constitutes vigorous competition. Conduct investigated under this Program that may be unlawful includes exclusive dealing arrangements, tying arrangements, and price and non-price predation ­ all of which can have the effect of driving competitors from a market through means other than vigorous competition on merits.

Nonmerger Enforcement Activities

Under the three nonmerger programs, the Commission opened 49 initial-phase investigations during fiscal year 1996. Five of these investigations were converted to full phase, along with two others that had been opened in earlier years.

The Commission accepted six consent agreements for public comment (with four of them made final during the year), finalized eight other consent agreements, and modified four others. The consent agreements accepted for public comment included:

• New Balance Athletic Shoe, Inc. (resale price maintenance on athletic shoes);
• Dell Computer Corporation (abuse of the standard-setting process in the computer industry to raise rivals' costs);
• RxCare of Tennessee, Inc. (agreements to impose "most favored nation" clauses resulting in restriction of price competition in sales of pharmacy services to pharmacy benefit plans);
• Precision Moulding Company, Inc. (unlawful invitation to fix prices on wood components for art frames); and
• Waterous Company and Hale Products, Inc. (exclusive dealing arrangements restricting competition in sale of fire engine pumps).

During fiscal year 1996, adjudicated decisions were issued in three significant nonmerger matters:

• In International Association of Conference Interpreters et al., an administrative law judge issued an initial decision in favor of the Commission's allegations that the association had engaged in a decades-long collusive scheme to fix prices and to restrict other work practices.
• In California Dental Association, the Commission issued a final decision finding antitrust violations for restrictions against truthful, nondeceptive advertising involving the price, quality, and availability of dental services. The matter is on appeal to the U.S. Court of Appeals for the Ninth Circuit.
• In Harper & Row Publishers, Inc., the Commission dismissed complaints against six book publishers alleging violations of the Robinson-Patman Act involving various price and promotional practices.

In a fourth significant nonmerger matter, Toys R Us, the Commission issued an administrative complaint that will be litigated during fiscal year 1997.

On the policy front, the Commission took important steps in providing public guidance on competition in the fast-changing health care industry. In August, the Commission, jointly with the Department of Justice, issued the 1996 Statements of Antitrust Enforcement Policy in Health Care. These revised statements emphasize that the same antitrust principles that govern other industries apply to health care providers and describe, based on the Commission's extensive experience in the area, how these basic principles are applied to the health care sector. The staff also issued five advisory opinions on proposed arrangements among health care providers.

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