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Federal Trade Commission Chairman Timothy J. Muris today released documents that provide information regarding the problems with the existing FTC-Department of Justice clearance procedures and the process that led to the negotiation of a Memorandum of Agreement by Muris and DOJ Assistant Attorney General for Antitrust Charles A. James. The agencies have not yet implemented the proposed Agreement.

The documents released today describe the problems with the current process that led Muris and James to undertake the proposed overhaul, including the blurring of the historical lines of agency responsibility due to the convergence of industries; the duplication of agency expertise in identical or similar areas, leading to more frequent clearance disputes in these sectors; and the inefficient allocations of primary areas of responsibility, due to the ad hoc and sometimes arbitrary nature of the historical clearance process.

"The problems with the FTC-DOJ clearance process have been documented for many years," said Muris. "We sought to fix the problem, and our proposed revamping of the process has garnered the support of antitrust experts as well as the business community. The proposed Agreement is a good government initiative that will enhance the quality of antitrust enforcement, and will benefit businesses, consumers, and taxpayers alike."

Among the documents released is a compilation of suggestions from four former antitrust enforcement officials to refine the clearance process. Muris and James each requested that two former officials from their respective agencies, all intimately familiar with the clearance process, analyze the current process and identify potential refinements. Two of these former officials served in the Clinton Administration (William Baer and Steven Sunshine), one served in the Administration of President George H.W. Bush (Kevin Arquit), and one served in the Ford and Carter Administrations (Joe Sims).

The December 21, 2001 "Initial Recommendations" document containing the observations and suggestions of Arquit, Baer, Sims, and Sunshine states that "the objective of the clearance process ought to be assignment of a matter to the most appropriate agency as quickly as possible, thus allowing that agency to move forward in its investigation." To this end, the document notes that the proposed suggestions were developed with the goal of reducing "potential friction points throughout the process, and allow[ing] decisions to be made quickly and effectively, even when there are good faith disagreements between the agencies." The document further notes that "in the vast majority of situations the allocation of matters between the agencies is not likely to have critical substantive effects."

Specific ideas contained in the "Initial Recommendations" include:

  • the development of a Clearance Manual that will be posted on each agency's Web site;
  • the allocation of all matters in specific industries to one agency or the other, based largely on each agency's predominant expertise;
  • the maintenance of a common database to track Hart-Scott-Rodino filings and clearance matters;
  • the designation of a dedicated Clearance Officer at each agency;
  • weekly meetings and reports to review the clearance process and ongoing matters;
  • expedited time frames for review, together with "negative option" provisions that prompt each agency to act quickly on clearance disputes or forfeit those matters to the other agency; and
  • provisions for obtaining input from a Neutral Evaluator in the rare instances in which the agencies are otherwise unable to resolve a clearance dispute.

William Kovacic, FTC General Counsel, noted, "Some observers have asserted that the suggestions of these former enforcement officials should be discounted because they are now members of the 'defense bar.' This characterization is incorrect; there is no 'defense bar' as such. In fact, a large portion of the work done by the merger bar these days is undertaken on behalf of parties opposing transactions, rather than proposing them. In the AOL/Time Warner matter, for example, more law firms represented parties seeking to reshape the transaction than represented the merging parties."

The Memorandum of Agreement that Muris and James negotiated reflects the adoption of many, although not all, of the suggestions contained in the document. The Agreement also contains a significantly refined industry allocation list, more detailed criteria for negotiating disputed matters not covered by the industry allocation list, and the establishment of a Convergence Committee that will address clearance issues arising as a result of continued convergence between certain telecommunications and information technologies.

The traditional methodology for allocating matters between the agencies, the documents point out, emphasized historical experience in addressing specific commercial sectors. As the boundaries that separate individual sectors have blurred in the face of rapid technological change, and deregulation measures have allowed firms to diversify, this methodology has begun to break down. In a growing number of key areas of mutual concern to the FTC and the DOJ, the effectiveness of the experience-based allocation methodology that anchored past clearance agreements has begun to wane. The Agreement does not purport to limit the jurisdiction of either agency, but clearly allocates to one agency or the other primary responsibility for many of these problematic areas, based largely on the predominant expertise of each agency. It also includes monitoring provisions to insure that, as industries evolve, so, too, will the clearance process.

The released documents observe that before either agency may begin an investigation, it must obtain clearance from the other agency. Delays in resolving clearance disputes can result in uncertainty and increased costs for businesses, and in increased harm for consumers when possible competitive problems remain unaddressed during the clearance process. Clearance disputes cause significant delays in both merger and non-merger antitrust enforcement efforts, and redirect scarce agency resources away from substantive investigations.

As the analysis of clearance delays released today indicates, since the beginning of FY 2000, one or both agencies have sought clearance on approximately 1,250 matters. The 136 matters in which the agencies formally contested clearance took, on average, three and a half weeks to resolve. In another 164 matters, clearance took more than one week to resolve, although no formal clearance dispute occurred. On average, these 300 matters - 24 percent of all matters for which clearance requests were filed - imposed delays of three weeks. Cumulatively, these investigations were delayed by 4,521 business days - more than 17 years. Under the terms of the proposed Agreement, more than 80 percent of these 300 matters would have been resolved within two business days.

Muris noted, "Even if the clearance process worked without friction, a more rational distribution of responsibility is needed. Consider the design and production of automobiles and trucks. These related areas of activity traditionally have been split between the DOJ (trucks) and the FTC (cars). The proposed Agreement would implement a more efficient arrangement that makes the best use of the agencies' resources by combining cars and trucks under the FTC's umbrella of product groups. Numerous similar groupings appear in the proposed Agreement's industry allocations. Grouping related products at a single agency will increase the depth and breadth of the agency's enforcement expertise in the relevant industry."

Also contained in the documents released today are letters from former antitrust enforcement officials, the Antitrust Section of the American Bar Association (ABA), and the business community. The three letters reveal broad and bipartisan support for the effort to streamline the clearance process by allocating primary responsibility for industries in which both agencies have expertise. The ABA Antitrust Section letter, for example, states that "a publicly announced agreement allocating responsibility by industry will lead to a more expeditious, efficient and transparent review process at least with respect to the allocated industries..."

Similarly, the letter signed by 11 former heads of the nation's antitrust agencies from the last four Administrations, reaching back 25 years - Terry Calvani, David A. Clanton, Joel I. Klein, Sanford M. Litvack, A. Douglas Melamed, James C. Miller, III, John M. Nannes, Robert F. Pitofsky, James F. Rill, Charles F. Rule, and John H. Shenefield - characterizes the effort to "clarify historical allocations of industries and products between the agencies, and introduce clear procedures for processing those few matters that do not clearly fall within existing allocations" as "desirable objectives" that could be "a real contribution to good government."

A third letter submitted jointly by The Business Roundtable, the National Association of Manufacturers, and the U.S. Chamber of Commerce states, "There is no dispute over the need to improve the clearance process," observing that the problem of delayed resolution of clearance requests was "identified by the ABA Antitrust Section in its report to the incoming Clinton Administration in 1993, and again in its 2001 Report to the Bush Administration." Citing examples of the delays, the joint letter lists the clearance dispute over the investigations into Internet licensing practices in the music industry that lasted more than 14 months; the dispute over ATT/Media One that lasted two months; the dispute over the AOL/Time Warner merger that lasted more than 45 days; and the Pacific Enterprises/Enova merger that required five months for clearance.

The joint letter states: "It is universally recognized that this [existing clearance] process is not an example of good government. It wastes the time and resources of both the agencies and the merging parties." The letter urges the FTC and DOJ to "work together to resolve problems with 'clearance' that too often impair the most efficient use of scarce antitrust enforcement resources," and concludes that an "agreed process for resolving clearance disputes and an agreed allocation of particular industries between the agencies would represent an exercise in 'good government,' be far more efficient than the current system, and also provide certainty to the business community, bar and the agencies."

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