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The 1996 Antitrust Conference, Business Development Associates Inc.
Washington, D.C.
Robert Pitofsky, Former Chairman

It has been almost a year since I returned for a third tour of duty at the Federal Trade Commission. For those who wonder about this constant coming and going, my response is that I am going to keep coming back until I get it right.

My report on the state of play for antitrust enforcement at the FTC will be broken down into discussions of the past, present and future.(1)

PAST. Like many in government, we have learned the lesson that consumers often can be best protected and competition best advanced by eliminating past rules, guides, orders and other initiatives that have become obsolete or were just plain wrong. As a result of these actions, we vacated in 1995 alone about 25% of all the rules and guides on the law books. Most of these involved consumer protection initiatives, but a few cut across competition issues. This process of review, initiated by my predecessor, Janet Steiger, will continue in coming years.

We also have tried to pay attention to complaints by the people we regulate that Hart- Scott-Rodino second requests for information about mergers have been unduly burdensome. Some suggested that one cause of the problem was that the Department of Justice and the FTC used up most of the 30 days available for deciding which agency would investigate a merger and then had to decide upon and issue a second request in just a few days. The claim was that under such time pressure, the staff of the agencies were forced to issue second requests because they did not have enough time during the 30 day waiting period to decide whether a deal posed serious competitive risks. To remedy the situation, the DOJ and FTC agreed that they would aim to clear projects to one agency or the other within nine days, leaving at least 21 days to discuss with the parties and other concerned interests whether a second request investigation was needed and the issues it should cover. Since that program was introduced, we have managed to clear the cases to one agency or the other in an average of 10 calendar days, down from 17 calendar days previously. With the improved procedures now firmly in place, we hope to do even better in the future. As a result, I believe Hart-Scott-Rodino second requests have become somewhat less burdensome. When the parties feel that is not the case, an internal review procedure is now available so that they can present their concerns to the Bureau Director at the FTC in an effort to narrow requests. These and other reforms may not solve every problem but we are committed to continue our review and to work with the bar association and other groups toward reform.

Another reform was the adoption of a rule that sunsets all orders - competition and consumer protection - after 20 years if there has been no intervening violation of the order. We believe that in most cases industries will have changed sufficiently in this increasingly dynamic economy that the order will no longer be necessary and indeed may block pro-competitive initiatives. While there probably will be some market settings in which the order still is useful, those will be sufficiently infrequent that a bright line 20 year cutoff makes sense.

Finally, the Commission has instituted a task force under the direction of General Counsel Steve Calkins, to propose ways to streamline our administrative litigation process. The task force will report to the Commission in the next several weeks.

PRESENT. The Commission of the 1990s has tried to strike a middle ground between what many people believe was an excessively active enforcement in the 1960s and the minimalist enforcement of the 1980s.(2) In the process we have restored much of the antitrust agenda that was abandoned during the period 1980 through 1988. For example, the Commission investigates and is prepared to enforce the law against resale price maintenance agreements, some carefully selected non-price vertical restrictions, attempts to monopolize, boycotts and vertical and conglomerate mergers - all areas of antitrust that were left completely or largely unenforced during much of the l980s.

We have not to date brought any new price discrimination cases under the Robinson- Patman Act. We have, however, reached out to trade associations and other groups that often represent the small business community and asked them to forward to us instances in which their members have been injured as a result of unjustified price discrimination. We stand ready to enforce that statute - although we will insist on real competitive injury and consumer disadvantage rather than pursue purely technical violations.

Two thirds of the Commission’s antitrust budget last year was devoted to merger review and the Commission accepted consent orders or challenged mergers more frequently than in the recent past. Thus, the Commission challenged 35 mergers in 1995, the most since 1979. I do not believe that reflects a radically different enforcement strategy. Rather, it is a consequence of the fact that merger activity has increased enormously in recent years. Over 2800 mergers, each involving acquired assets of over $l5 million, were filed at the FTC last year - an increase of over 20% compared to 1994 - many of very great size and involving direct competitors. Industries like health care, pharmaceuticals, defense and media are in the process of restructuring and one consequence is a sharp increase in mergers and joint ventures. Most of these transactions raise no serious antitrust problems and are healthy indications of a dynamic and fluid economy; others, however, move close to the line of illegality and require extensive investigation.

Horizontal and vertical mergers and joint ventures continue to be the staple of FTC investigations, but conglomerate mergers and joint ventures are not off the screen. For example, the Commission challenged the acquisition by a pipeline monopolist serving the Salt Lake City market of 50% of the stock of a rival pipeline that was threatening to extend its line to serve industrial users in the Salt Lake City market. Although the potential rival had not made a single sale in that market, we believed it qualified as an actual and perceived potential entrant because, through bidding and other negotiations, it was already producing competitive effects in the market. In particular, prices by the incumbent were adjusted downward because of the threatened entry. If there is to be conglomerate enforcement, I would expect it to be this type of case - where there is strong evidence of actual potential entry or perceived competition that has a present effect on the marketplace.

One continuing development at the Commission is the willingness of the staff and the Commissioners to experiment with innovative remedies. Increasingly, we try not to be caught in a go - no go situation in which the only alternatives are to challenge all aspects of the merger or clear the deal. For example, where substantial efficiencies can be demonstrated, the Commission has been willing - especially in vertical mergers but elsewhere as well - to allow the transaction to proceed on condition that an order is entered designed to ensure that a new entrant can feasibly enter the market. By concentrating on the long term competitiveness of the market rather than immediate market effects, some deals that might be struck down on the basis of conventional analysis are conditionally allowed.

In addition to filing new cases, we are trying to learn from our past experience (both successes and failures). One example is a review by the Bureaus of Competition and Economics studying the techniques used and the market impact of nine recent divestiture efforts by the agency. We intend to follow up this report with directions to the merger staffs indicating how divestitures ought to be handled, common problems and pitfalls, and the extent to which the Commission’s remedial objectives were satisfied. One proposal that makes sense to me is that the Commission regularly conduct investigations 6 to 12 months after divestiture to measure how the process has worked.

FUTURE. While the Commission stands ready to enforce the antitrust laws - hopefully in an informed and sensible fashion - we are acutely aware that the commercial world is changing. We are concerned that some portions of antitrust doctrine, mostly judge made law from the 1950s and 1960s, may not reflect these changed circumstances.

In those days just after World War II the attitude toward competition values in the United States was entirely different than it is today. As is so often the case, Philip Areeda summarized that point of view best:

Riding the crest of World War II successes and implementing the pent-up technology of the 1930s and the war years, American industry seemed invincible. In that frame of mind why not err on the side of preserving large numbers of rivals, and limiting their collaboration? Even if efficiency or innovation suffered what did that matter?(3)

The Commission initiated a set of hearings last fall to examine the nature of contemporary competition. In particular, we noted the vast increase in global competition. Total exports have multiplied ten-fold since l970, and now account for roughly twice the Gross Domestic Product. Imports have increased at a similar pace as have cross border financial investments. International joint ventures and strategic alliances are almost as common today as interstate alliances were 50 years ago. We also noted that in many industries -- computers, biotech, communications among many others - buyers consider innovation as an increasingly significant element of competition.

About 200 participants offering their views at the Commission during a period of 10 weeks emphatically confirmed these premises. The exercise was not an attack on the core of antitrust; indeed many witnesses emphasized the importance of appropriate antitrust enforcement in a global economy. None of the participants, including those representing industries that believed they were aggrieved by wrongheaded enforcement, thought that radical changes in U.S. antitrust policy were necessary. Rather, they accepted antitrust’s traditional hostility to cartels and accumulations and abuse of dominant market power, and primarily asked that antitrust be sensitive to the way business is being done today.

A staff report summarizing the substance of the hearings and also offering some conclusions and proposals should be publicly available in April or May. It is premature to attempt to report on any findings or conclusions but I can, as a sort of preview of coming attractions, indicate some of the issues that will be addressed and some of the pros and cons of the debate.

1. Treatment of Efficiency Claims.

There was wide support for the view that claims of efficiency should be given somewhat more attention in the overall examination of competitive effects. Participants were particularly critical of the treatment of efficiencies in merger analysis. Claims of efficiency will ordinarily be taken into account when addressed to the prosecutor’s discretion about merger enforcement, but according to Supreme Court decisions not when the issue is addressed in court. Also, caselaw allows claims of efficiency in connection with defense of a joint venture but not a merger. Many commentators suggested there was a need to revisit those positions and reconcile merger enforcement with other aspects of antitrust review. On the question of the nature and size of efficiencies that could make a difference, many asked for clarification.

In addition, there was a fair amount of disagreement about the unwritten rule in U.S. antitrust policy that efficiency claims, even if they are credible and the efficiencies are substantial, will not be taken into account unless there is reason to believe they will passed along to consumers.

2. Failing Firms / Distressed Industry.

Most participants did not find the failing firm defense for mergers under U.S. antitrust law to be unduly rigid. A few participants argued that the requirement that there be no less restrictive purchaser and that the “failing” assets were certain to leave the market absent a merger prevented weak assets from being moved to stronger management. Others countered that claims of “failure” and “distress” were difficult to measure and often lacked substance.

One interesting theme touched upon by several commentators was that the controversy over failing firm and distressed industry claims would be less acute if claims of efficiency were treated more generously. Under that view, lenient antitrust treatment of firms in difficulty was most justified where the merger would allow one or both firms to become much more efficient and thereby avoid the bankruptcy courts.

3. Technology Markets.

Perhaps the liveliest controversy in the 10 weeks of hearings had to do with whether there is such a thing as a “innovation market” and whether anticompetitive effects can occur in such markets. All agreed that antitrust challenges to transactions relating to the innovation process should be approached with extreme caution. Antitrust enforcement has not unduly burdened research and development in the past and the last thing we want to do is discourage innovation, or entry through innovative activities. Nevertheless, it can be argued that in an increasingly technology driven society, it is important to prevent transactions at the innovation stage which unnecessarily produce dominant market power - especially if later challenges at the product market stage are difficult to mount successfully.

Those arguing in favor of the use of innovation market analyses in antitrust law stressed that innovation is an important part of a competitive process that needs to be protected from improper private behavior and, second, failure to intervene early may allow firms to obtain dominant positions or obtain a gatekeeper position that is difficult to dislodge.

Others countered that enforcement at the innovation stage will usually be premature. They noted that a theory for measuring the worth of innovation competition has not yet been developed. Unlike price theory where the assumption is that lower prices for quality products is always a good thing, it is not nearly as clear that more R&D rather than less R&D will serve a useful purpose. The additional R&D may be redundant and wasteful. They also pointed out that intervention at the R&D stage (especially when product market penetration is several years down the road) is highly speculative and that in any event barriers to entry for new ideas and innovation are often low. Finally they noted that coordinated effects in an innovation market are hard to imagine because the “product” is so heterogeneous , so that any intervention probably should be limited to threats of unilateral anticompetitive behavior.

These and other issues will be examined and discussed in the forthcoming staff report. Hopefully, the quality of the report will justify the exceptionally fine contribution of so many participants in the proceedings.

Finally, let me say a word or two about the more distant future of antitrust. As the commercial world grows smaller, and additional countries (for example in eastern Europe and the Pacific Rim) enter the global market place, more and more transactions touch upon the welfare of consumers in many different countries. Occasionally the only effective way to investigate and challenge such transactions is by coordinated efforts at an international level. In recent years much progress has been made under the leadership of Jim Rill and Anne Bingaman at the Department of Justice, and my predecessor Janet Steiger at the FTC, in negotiating bilateral agreements with some of our major trading partners providing for various levels of cooperation in examining international competitive behavior. Such agreements are in place with Australia, Germany, Canada and the European Community, and discussion is under way to achieve similar arrangements with others. While negotiation and elaboration of these arrangements is almost always slow and difficult, I have no doubt that they are necessary if competition policy is to be vindicated at an international level.

It is more uncertain whether any sort of substantive harmonization is possible in the foreseeable future. That issue may be discussed in connection with future GATT negotiations as well as at World Trade Organization meetings later this year. Even a modest step toward international coordination - for example, a policy among major trading partners of hostility to the hardest of hard core cartels - could be a constructive step in the right direction. At this point, the proposal would not include some kind of world wide enforcement mechanism, but rather a commitment by each country to enforce its law in a way that is consistent with the policy statement.


The ideological antitrust wars of the 1960s and 1980s appear to have produced a rough consensus of what kind of enforcement is useful and what kind of enforcement is unnecessary and unduly intrusive. I do not mean to suggest that everything has been worked out to everyone’s satisfaction, but there is at least some consensus about key issues of cartel and merger policy. The challenge now is not so much at the ideological level but rather to insure that antitrust remains appropriate in a fast changing world.

(1)These views are my own, and not necessarily those of the Commission, or any other Commissioner.

(2)Trends are commented upon in Pitofsky, The Renaissance of Antitrust, Record of the Bar of the City of New York 851 (Nov. 1990).

(3) Areeda, Antitrust Law as Industrial Policy: Should Judges and Juries Make It? in Antitrust Innovation and Competitiveness at 35 (Jorde and Teece eds., 1992).