Antitrust enforcement at the Federal Trade Commission has just concluded one of the most active years in recent memory, according to William J. Baer, Director of the agency's Bureau of Competition. Enforcement activity rose as a result of a record number of corporate mergers, combined with rigorous enforcement in the health-care and high-tech industries. During federal fiscal year 1998, which ended on September 30, the FTC's antitrust arm brought a total of 50 enforcement actions -- 43 percent more than in the previous year.
"The year's accomplishments are a tribute to a hard-working staff that has had to deal with an expanding workload but with resources that haven't changed much in the last decade," Baer said. "We are busier than ever. But by promoting a competitive economy, we are ensuring that the American consumer gets good prices and good product quality across a whole range of different industries."
The increase in the agency's antitrust workload was most evident in the increase in merger filings. The United States is in the midst of a merger wave of unprecedented proportions, with mergers exceeding $1 trillion over the past 12 months, Baer noted. By law, each sizeable merger must be reported to the federal antitrust agencies for their review before the transaction is consummated. In fiscal year 1998, there were a record 4,728 Hart-Scott-Rodino filings -- an increase of 28 percent from the year before, and a threefold increase since 1991. Buoyed by a strong economy and rising stock prices, the number of reported transactions has increased in each of the last eight years. Each of these filings is reviewed individually by the antitrust agencies for possible competitive issues.
Antitrust enforcement is up by many other measures as well. In fiscal year 1998, the FTC negotiated 23 consent agreements to resolve competitive concerns in mergers, the second-highest number in a decade. The agency won three preliminary-injunction cases in federal court, and in six other cases the parties dropped the transaction after being informed of the agency's concerns. The industries affected by these actions are as varied as gasoline, computers, distilled spirits, and engine bearings.
FTC enforcement involving anticompetitive non-merger practices was also substantial. During the last fiscal year the agency brought 13 enforcement actions challenging a variety of anticompetitive conduct, the highest total in over a decade. Of these actions, 11 were resolved by consent agreements; the remaining two are scheduled for trial in the coming months. The agency also won more than $4.5 million in civil penalties.
Despite the increased activity, the FTC continued to work to minimize the enforcement burden on business. While merger investigations increased, second requests (requests for additional information from merging parties) remained essentially constant.
Several cases during the year had particular significance for consumers:
The Drug Wholesalers matter was meaningful for the sheer number of consumers protected. In this case, the FTC secured a preliminary injunction in federal district court, preventing the proposed mergers of the nation's four largest pharmaceutical wholesalers into two companies. The agency challenged McKesson Corp.'s acquisition of AmeriSource Health Corp., and Cardinal Health, Inc.'s acquisition of Bergen Brunswig Corp. In court, the agency argued, successfully, that the two mergers might substantially reduce competition for drug wholesaling services -- a market that is important to virtually every consumer in the country.
The S.C. Johnson case illustrated how the Commission's antitrust enforcement can protect competition affecting important and familiar consumer brands. In that case, the agency negotiated a settlement in which S.C. Johnson agreed to divest a portion of the assets it would gain in its $1.125 billion acquisition of DowBrands, including Dow's "Spray 'n Wash," "Spray 'n Starch" and "Glass Plus" brands.
In Tenet Healthcare the agency secured a preliminary injunction against the proposed merger of the only two commercial acute care hospitals in Butler County, Missouri. According to Baer, this case had particular significance. It broke a string of five consecutive losses in government challenges to hospital mergers. "This shows that the antitrust laws do apply to local hospital markets," noted Baer, "and it also shows that we and the Department of Justice remain committed to litigating these complex and difficult cases where the facts warrant it." The case is now on appeal to the circuit court.
In Columbia/HCA Healthcare the Commission put additional teeth in its merger program by obtaining a $2.5 million civil penalty to settle charges that the firm violated a 1995 order to divest hospitals in Utah and Florida in a timely manner. This was the second largest penalty ever imposed for failure to divest within contemplated time periods.
Among non-merger cases, the Internet Auto Dealers matter was important in that it applied established law against boycotts in the new commercial context of Internet sales. "Application of sound antitrust enforcement is critical for consumers to receive the full benefits of competition on the Internet," explained Baer. In this case, a group of 25 automobile dealerships allegedly banded together and threatened to boycott Chrysler if the manufacturer did not agree to change its vehicle allocation system so as to restrict the number of vehicles available to competing dealers who offered low prices through marketing on the Internet. The dealers agreed to an order prohibiting any such boycotts in the future.
Another boycott matter, The College of Physician-Surgeons of Puerto Rico, was significant in that it protected the particularly sensitive market of health-care services for the indigent. The Commission obtained a consent to settle charges that physicians had collectively demanded price-related changes under Puerto Rico's government-managed care plan for the poor. The complaint had charged the defendants with attempting to coerce the government into recognizing the College as the exclusive bargaining agent for all physicians of Puerto Rico, and with calling a strike of all physicians on the island for all non-emergency patient care. The FTC action not only prohibits any future doctor strikes, but also required the College to provide restitution to the Commonwealth.
The Summit / VISX case focused on misuse of intellectual property. The FTC issued a complaint against Summit Technology and VISX, Inc., the only two firms authorized to sell the equipment and technology used for laser eye surgery, charging that they had formed a joint venture to pool their patents rather than compete against one another. The agency successfully negotiated a consent order, under which the two firms agreed not to fix prices for the use of their lasers and patents. Other charges of patent fraud against VISX are still pending and are scheduled for trial next month.
Principal FTC Antitrust Actions from Fiscal Year 1998
Merger Preliminary Injunctions
Shell Oil Co. (joint venture with Texaco Inc.)
Merger Administrative Complaints
Boral Ltd. (Monier Lifetitle)
Merger-Related Civil Penalty Actions
Copies of press releases detailing the cases referenced above, and the legal documents associated with them, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
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Bureau of Competition