The 44th Annual Antitrust Spring Meeting, Federal Trade Commission Committee
Good morning. This year's Spring Meeting occurs on the eve of the anniversary of Bob Pitofsky's arrival at the Commission as its Chair and my appointment shortly thereafter as Director of the Bureau of Competition. For that reason I thought it was a fitting time to report to you on what we have accomplished in the last 12 months, and also to identify some of the challenges we face going forward.
It has been a busy and productive year, one the Bureau can review with pride. But it is important to recognize the base of accomplishment on which we were privileged to build. The Commission under the leadership of Janet Steiger and her two Bureau Directors -- Kevin Arquit and Mary Lou Steptoe -- left a legacy of achievement that has made our job easier. As in an acknowledgement accompanying a work of literature, we thank them for their assistance but concede that any errors are our own.(1)
We gave high priority to three goals going into this past year, and I think we have something to point to in each area:
- First, we sought to rationalize and streamline the merger enforcement process. There we have made substantial progress. We've speeded up the clearance process, giving us more time for careful evaluation. We've reduced the number and burden of second requests and exempted certain transactions from the filing requirement. At the same time, we've defended the integrity of the premerger filing requirement by securing record high civil penalties for very serious violations; we've carried out a tough enforcement policy for substantive merger violations; and we've taken a pragmatic new look at the effectiveness of past merger orders to help us move toward more effective remedies.
- Second, we have made great strides towards revitalizing our nonmerger enforcement in a time of tight resources: Realizing the demands the current merger wave places on our resources, we've taken steps to focus investigations more sharply at an earlier stage, emphasize analysis of competitive effects over the search for per se theories, move to the enforcement stage as quickly as possible, and provide more guidance to business and the private bar as to the enforcement concerns underlying consent orders.
- Third, we have tried to keep our eye on the ball, bringing cases that yield the largest tangible benefits to consumers for the fewest taxpayer resources and with the least burden to business.
Here are the details on what we have accomplished and what we have set in motion for the future.
Let's start with mergers, which account for a substantial percentage of our enforcement efforts.
As you know, mergers and acquisitions are occuring at record levels. Indeed, the number of transactions for which we have received Premerger Notification filings has increased significantly every year since 1992. Last year -- fiscal 1995,-- filings totaled 2,816 transactions, an increase of more than 77% from the fiscal year 1992 total. This year the pace of filings exceeds the 1995 pace. And it is worth noting that the transactions we are seeing these days are different from the financially driven deals we saw in the late 1980's. These deals today tend to be strategic -- competitors looking to buy market share, expand products lines, enhance R & D capabilities and achieve integrative efficiencies. As a result they are deals the antitrust enforcers are more likely to need to review.
The enforcement statistics bear this out. Last year merger enforcement activity was at record levels. In fiscal year 1995, 81 mergerinvestigations were opened; twice as many as in 1992. As of February 29, there have been 21 this year. More important, our enforcementactions have increased dramatically. In fiscal 1995 we challenged or threatened to challenge 43 deals, leading to 30 consents, 8 abandoned deals, and 5 preliminary injunction proceedings authorized. So far in 1996, we have acted on 14 transactions, with ten consents, 2 abandoned transactions, and 2 PIs authorized. Again, comparing this to the low levels of enforcement in 1992, the corresponding numbers were 14 transactions, 5 consents, 9 abandoned transactions, and no PIs.
Among the notable recent merger cases are:
- The Commission's consent agreement in Hoechst AG's acquisition of Marion Merrell Dow Inc.,(2) which created the third largest pharmaceutical firm in the world in a $7 billion transaction. The Commission alleged that the merger threatened competition in markets for four drugs, including medications for high blood pressure and angina, leg cramping caused by arteriosclerosis, ulcerative colitis and Crohn's Disease, and tuberculosis; and required divestiture and related relief to preserve competition in each area as a condition for the merger.
- First Data Corporation's acquisition of First Financial Management Corporation,(3) in which we estimated that FTC action saved U.S. consumers $15 million to $30 million per year in money wire transfer fees. These firms owned the only two consumer money wire transfer services in operation in the United States. The merger would have resulted in a renewed monopoly in this market and raised prices for millions of consumers who need these services. The consent agreement accepted by the FTC requires the divestiture of First Data's MoneyGram business in order to retain that competition, and until that divestiture is completed, MoneyGram has to be operated as a separate business from Western Union.
- In Columbia/HCA's acquisition of Healthtrust, the Commission accepted an order maintaining competition in acute care inpatient hospital services in six different geographic markets around the country, in a $3 billion merger of hospital chains. In a separate transaction, Columbia/HCA-John Randolph Medical, the Commission's accepted an order maintaining competition in psychiatric hospital services in south central Virginia.
- The Commission recently accepted for comment a settlement with the French firm, Compagnie de Saint-Gobain, and its U.S. subsidiary to resolve charges that the firm's acquisition of The Carborundum Company from the British Petroleum Company likely would lead to monopolies or near-monopolies, and thus raise prices, for three products used in industrial furnaces and home appliances.(4) The proposed consent agreement to settle these charges is designed to restore competition in these markets by requiring Saint-Gobain to divest businesses and associated assets in each of the markets to firms that will run them in competition with Saint-Gobain.
Rigorous Merger Enforcement
These increased demands on our resources have forced us to approach our scrutiny of mergers rigorously: to identify real problems, and to move as quickly as possible to real solutions. What does that mean? It means no cheap consents. One of the surprises I encountered upon taking this job was the opportunity some merging parties offered us to resolve potential competitive concerns in an HSR investigation before our investigation was completed, through a consent agreeement that addressed some aspects of those concerns. The parties' interests are clear and not illegitimate. A quick and limited consent gets the deal through at minimum cost. The government's interest in those deals, other than putting notches on our belt, is less clear. As a result, we are discouraging that kind of settlement.
We want to address only real problems and we will only consider real solutions. Where merging parties are not prepared to offer all of the relief that our investigation has shown to be necessary, we will recommend that the Commission authorize us to go to court. An inadequate remedy does not serve the public interest. It does not do consumers any good, and it only brings disrespect to the Commission. Therefore, in my view, if a case is worth bringing, it is better to go to court and take our chances than to take a paper consent. On the other hand, if the competitive harm is more questionable, it would be better not to bring a case than to accept a paper consent.
The Questar/Kern River gas pipeline case is a recent example.(5) That case involved the exclusive transporter of natural gas to Salt Lake City seeking to acquire a 50% stake in the only pipeline that potentially offered a competitive alternative to Salt Lake City customers. The parties proposed consenting to a regulatory decree that would limit Questar's ability to exploit Kern River (but would not have dealt with Questar's changed incentive structure, i.e., the fact that it could bid less aggressively without fear of losing completely because of its 50% stake in Kern River). We urged the Commission to reject the proposed remedy as inadequate and authorize an injunction action. The Commission agreed, and the parties abandoned the transaction just as we filed our papers. (Let me add, parenthetically, that this case is also interesting because it was brought on an actual potential competition theory supported by strong evidence.)
Another recent example is the Butterworth/Blodgett hospital merger case,(6) in which a preliminary injunction hearing is pending in district court. As you are aware, both we and the Antitrust Division have had a recent setback on hospital mergers. Our response, however, is to strengthen our efforts, not to pull in our horns.
I won't talk about the merits of the case since I'm not participating in it, and its also against our policy to discuss the merits of cases in litigation. I will note that, however, you will see in the complaint a movement away from sole reliance on the general acute care inpatient "cluster" product market, with an alternative narrower primary care market. Although such cluster markets have been upheld in a number of court decisions, and does a reasonably good job of delineating the outer bounds of the services in which many merging hospitals compete, where sufficient data are available at the time of a PI action it may be appropriate to plead narrower markets as the Commission has done in Butterworth.
The point to take away from the Butterworth case is that we remain committed to protecting consumers from the risk of higher costs in local communities where hopital mergers will unduly limit competition. And that means going to court to seek a PI where we cannot achieve a meaningful negotiated disposition.
I emphasized that we seek "real relief for real problems" and that we are resisting the temptation to make a quick score where merger parties push us to take proffered relief and let them move on, but where we haven't yet completed our investigation. That does not mean we are insensitive to the parties' need for prompt FTC action. We simply have to find a way to address the need for prompt action without compromising our enforcement responsibilities.
The Hoechst case is one example. The Commission accepted a "hold separate" agreement under which Hoechst was permitted to proceed with the acquisition of Marion Merrell Dow's stock on condition that it could not exert control over MMD's operations pending the completion of the investigation. As part of the agreement, Hoechst committed itself to a settlement that provided the broadest possible relief in every possible market that might be affected by the acquisition. At the conclusion of the investigation, depending on the results, the Commission could accept the settlement, accept parts of it, or conclude that no relief was necessary.
The Hoechst agreement accommodated the parties' desire to close the transaction early, but also assured that the staff could conduct a full investigation and get all the relief necessary. In the end, we took relief in four significant drug markets in which we believed the acquisition would injure competition, with cost-savings for consumers we have estimated at perhaps $30 million annually.
I have talked about this before(7) and want to restate my strong view that we will consider this approach only where three conditions are present:
First, the relevant markets must be easily defined. If we can't define the markets, we can't determine where the relief should be directed.
Second, we must be able to determine with a high degree of specificity the kind of relief that would be appropriate for whatever kind of competitive harm we may find, as well as the maximum relief that might be necessary.
Third, the parties must be willing to give us something approaching a blank check for such remedies. They have to leave their negotiating leverage at the door.
Obviously these are tough conditions, so we don't expect that the procedure will be used often. However, it is available for the proper case if the parties are willing to trade off an earlier closing for giving us the right to insist upon broad antitrust relief.
Looking back, that approach might have served us well in the Nestle case.(8) There, we had negotiated a consent agreement with Nestle in connection with its acquisition of Alpo Pet Foods from Grand Metropolitan, requiring divestiture of a major cat food facility. Because the parties had legitimate business reasons for closing by year-end, and offered divestiture of a major production facility, the Bureau recommended settlement to the Commission without concluding the second request investigation. Bureau staff and management believed in good faith that they understood the relevant market and that the relief was appropriate to the problem identified.
But public comment raised a number of questions about whether there was a violation and, if there was, whether divestiture of cat food manufacturing capacity would solve it. So we took another look, concluded that there was significant doubt about a violation, and recommended to the Commission that it drop the case, which it did.
Obviously, we would not want to repeat this experience, where the imposition of a potentially resource-wasting order was averted only by fortuitous public comments.
Certainly some of what I've said about merger enforcement speaks of our willingness to litigate, whether in a PI proceeding before a district court, or in the Commission's own administrative forum. With respect to the administrative process, I should mention that the Bureau has participated actively in the Part 3 Task Force appointed last year under the able leadership of General Counsel Steve Calkins with a charter to find ways to make administrative litigation more expeditious and efficient. I'm not in a position to preview the upcoming Task Force recommendations, but we look forward to the outcome of the Commission's deliberations on that subject.
Tough HSR Enforcement
Tough, effective and responsible merger enforcement is premised upon private party compliance with their Hart-Scott-Rodino premerger notification obligations. The statutory merger review regime promulgated by Congress in the 1970's is designed to benefit both the government and the merging parties. It ensures the antitrust agencies a meaningful opportunity to conduct an investigation and take action, if necessary, before companies merge. It also provides parties with some meaningful deadlines for agency action and increased certainty before they close about the likelihood of a merger challenge. The HSR Act and section 13(b) of the FTC Act together serve both to enable us to preserve fully the opportunity for effective relief and to prevent interim harm to competition and consumers. That whole scheme depends upon HSR compliance. Two very recent actions by the agency demonstrate our growing concern about the adequacy of HSR compliance in the private sector. They also show the Commission's resolve to move aggressively against those who fail to meet their HSR obligations.
In Sara Lee(9) the Commission, working with the Antitrust Division, recently obtained a record $3.1 million civil penalty to settle charges that it violated the HSR Act by failing to file notification in connection with its acquisition of Griffin and other shoe polish brands from Reckitt & Colman. There we believed the parties had deliberately understated the value of U.S. assets they were acquiring in order to hide from our scrutiny a highly problematic transaction. We found out about it after the fact. In 1994 we required divestiture of the assets wrongly acquired by Sara Lee.(10) Last month we secured a record fine for the HSR violations.
?Failures to file are not the only problem. For some time we have been concerned about the adequacy of compliance with Item 4(c)'s requirement to produce competitively sensitive studies and analyses of the deal. As private practioners, my senior deputy George Cary and I both came to question whether parties where taking that requirement seriously. Since coming to the agency, we have seen repeated instances where significant 4(c) documents showed up only in response to the Second Request and were not contained in the initial HSR filing. In those instances, we start the clock all over.
?A case settlement we filed just yesterday -- with Automatic Data Processing Inc.(11) -- shows what happens where the failure to produce 4(c) documents denies us the opportunity to examine a deal before closing.
In 1995 ADP submitted an HSR filing without any 4c) documents. Following the closing of the transaction, we received complaints from the public that it had resulted in damage to competition, and discovery in our ensuing investigation revealed documents that clearly should have been filed under 4(c). We alleged that the HSR filing had been materially deficient, and that ADP simply failed to take the 4(c) requirement seriously. ADP agreed to settle those charges -- for $2.97 million. This represented $10,000 per day for each day they had failed to comply with the HSR Act, the maximum penalty to which they were exposed.(12)
Violations of this sort go to the heart of the premerger notification system, and will be treated with the seriousness they deserve -- through a settlement if possible, in court if necessary.
Improvements to HSR Premerger Notification Process
Last year at this time the single biggest issue of concern to the antitrust bar was the HSR process and concerns with timeliness, burden and reporting requirements. Just about 12 months ago today, Janet Steiger and Anne Bingaman announced an ambitious set of policy initiatives aimed at addressing those concerns. Those reforms included:
- Issuance of a joint FTC/DOJ model second request
- Adoption of procedures to expedite the clearance process
- Implementation of uniform procedures to review the burden of second requests and to examine disputes as to substantial compliance
- Adoption of a joint "quick look" policy for reviewing HSR filings
- Development of proposals to increase the number of transactions exempt from HSR requirements
I am pleased to report that the FTC and the Antitrust Division together have made substantial progress on all of these fronts.
?The annotated, uniform second request model was developed by the two agencies and has been in place for almost a year. There has been wide praise for the model. For good reason. Under the new second request, and with continued use of the "quick look" policy, we have seen a 40 percent reduction in document production burden in second requests in the last year. Lessened document production burden means parties need take less time to comply with the second request; we have seen a corresponding 30 percent reduction in the time between issuance of the second request and substantial compliance.
?Clearance times are also down dramatically under the new procedures. Previously it took an average of more than 17 days out of the 30 day waiting period to resolve clearance disputes. That clearly was not acceptable. Since April, we have shortened the average time period by almost 40 percent, to about 10 calendar days -- which works out to about 7 business days. While we still have a ways to go, the progress is significant. This has given us more time for investigation during the initial waiting period, resulting in better-informed second request decisions and more focused investigations.
It is important to note that clearance issues do not arise at all in about 86% of the mergers we review. But when they do, they are being handled promptly, leaving considerable time for the parties to work with us so that we can determine whether a second request is really necessary and, if so, what markets it should cover.
Here, too, the preliminary statistics support the view that earlier clearance allows us to resolve our competitive concerns without resorting to the Second Request process nearly as often. Since adopting the expedited clearance procedures, we have increased the percentage of transactions we have investigated during the 30 day waiting period; but simultaneously we decreased by 40 percent the number of transactions requiring a second request. In other words, we are making good use of these extra days to investigate, and we are issuing fewer Second Requests as a result.
We have also fulfilled the commitment to amend the HSR rules to exempt more transactions: final rule changes were announced this past Monday. One of these rules clarifies, defines and broadens the kinds of acquisitions exempt from HSR requirements as transfers of goods or realty in the "ordinary course of business." That exemption has been a focus of frequent questions.
Other rules exempt the acquisition of certain categories of real property assets, the acquisition of carbon-based mineral reserves valued at $200 million or less, and the acquisition of securities whose underlying value is represented solely by those kinds of exempt assets. Those acquisitions are unlikely to violate the antitrust laws, and so the reporting requirement is an unnecessary burden. The fifth rule exempts acquisitions by certain investors of rental real property. Those transactions likewise are not likely to violate the antitrust laws.
The anticipated result is that about 7% of current filings will no longer be necessary, resulting in a substantial saving of time and money for business. I'd like to acknowledge the contribution of the ABA Antitrust Section to this effort, a contribution we hope will continue.
Next on our agenda are proposed simplifying changes to the Notification and Report Form proposed by the Commission in 1994. If adopted, these rules would eliminate parties' submission of information non-essential to the antitrust review of a reportable transaction. They also would clarify the kinds of information called for under Item 4(c) of the HSR Form.
What can you expect in the year ahead with regard to merger enforcement? There is one area in particular where we have begun to focus our energies and expect to make a significant change in our policies: our approach to merger remedies.
Do you know that the Commission in its entire history has ordered divestiture, whether by consent or litigated decision roughly 120 times since the HSR program began. That in itself is not surprising. What is stunning is that well over half of those orders were entered since 1990. Why? Merger enforcement has changed. Where problematic transactions often used to be challenged in their entirety, today most are resolved by consent decree where the deal is allowed to close so long as a package of assets sufficiently large to address our competitive concern is set aside for divestiture.
There is a lot to be said for that change, letting the procompetitive aspects of mergers occur while blocking the deal only in markets where there is serious risk of competitive harm. But it is prudent only if we have a high level of confidence that divestitures we have ordered are achieving their desired results and restoring the competitive vigor that the deal otherwise would displace.
As I indicated in a speech last summer, I was struck after arriving at the Commission by how little we knew about how the divestiture process has worked. Our attention was focused on the front end -- analyzing the markets, identifying competitive concerns, and cutting the deal. But given that the bottom line of merger enforcement is avoiding transactions that threaten to lessen competition, I thought it was high time we looked more closely at the back end of the process.
Our first step was a preliminary study, together with our Bureau of Economics, of the effectiveness of various types of past Commission divestiture orders in merger cases. We plan to expand our examination of this issue in future. But these prelimary results tended to confirm the direct observations of our merger and compliance assistant directors that we needed to change the Bureau's policy toward the remedies we seek in merger settlements. Here are the key changes we are beginning to implement:
We will shorten considerably the time a respondent has to divest the asset package. Under current practice a party signs a consent, which is then forwarded to the Commission for preliminary approval. It then goes on the public record for 60 days of public comment, after which the staff analyzes comments received and recommends whether the Commission should give final approval to the deal. If it does and the Commission agrees, then and only then does the typical 12 month period for divestiture begin.
This is too long. We are convinced that the current average of 15 months or more is much longer than the typical business needs to find a suitable purchaser, and often results in a diminution in the competitive value of the assets. The unintended effect of the Bureau's current approach to divestiture time periods is to make divestiture a less immediate and lower priority for the respondent than the acquisition itself. For these reasons, we would like to set 6 months from the date the consent agreement is signed as the presumptive time period for divestiture. We have done that successfully in a number of recent orders.(13)
After such time, the Commision would have the option of continuing to allow the party to find a divestiture candidate or to put the divestiture responsibilities with the trustee. In retail cases, where the value of the assets can diminish very quickly, we believe prompt divestiture is even more essential, and would like to strive for a divestiture period of 4 months.
In appropriate cases, we will seek to expand the asset package to be divested. While the natural tendency in negotiations is to focus only on the specific product lines in which there is an overlap, our study suggests that narrow product lines may in some cases not be saleable. We need to renew our efforts to make sure the divestitures we recommend to the Commission have sufficient assets in them to present the likelihood of a successful divestiture, since this is essential to preserving the threatened area of competition.
We intend to emphasize to respondents the advantages of identifying a buyer up front. This is particularly valuable where staff and the parties are having trouble reaching agreement on the scope of the divestiture package. Where a respondent confidently asserts that a more limited divestiture package will both resolve our competitive concerns and be saleable, it can put its money where its mouth is by bringing us the buyer to evaluate in conjunction with the Commission's initial consideration of the settlement. The Commission has approved at least two consents in recent months with up- front buyers, Illinois Tool Works(14) and Scott's/Miracle Gro.(15) The advantages of this approach are clear to both sides. A respondent has the opportunity to demonstrate that the package it offers is indeed saleable to an acceptable buyer; the Commission has the opportunity to evaluate this contention on more concrete evidence. The public is well served by a divestiture that is accomplished quickly, requires limited Commission resources and has a higher likelihood of success.
Another approach that elevates the importance of a timely and effective divestiture to the respondent is the crown jewel provision. We would like to make broader use of these provisions in appropriate circumstances. They increase respondent's incentives to complete the agreed divestiture on time, and provide a presumably more attractive package for the trustee to divest if respondent fails. They also increase respondent's incentives to agree to a viable divestiture package initially, to increase its confidence that it will succeed in avoiding invocation of the crown jewel provision.
We will emphasize to our staff the importance of negotiating Hold Separate Agreements comprehensive enough to protect all the asets to be divested, including the crown jewels subject to divestiture on a contingent basis. In some cases such agreements will include the use of interim trustees to ensure the hold separate is fully observed and the assets are maintained and compete effectively during the divestiture process. Trustees are used in this capacity in the recent Hoechst/Marion Merrell Dow order.
Finally, we intend to take some internal steps that complement these changes:
Compliance will move more quickly to recommend appointments of trustees where the time for divestiture by respondents has or is about to expire.
We will initiate as a regular matter follow-up contacts with buyers of divested assets and their customers and suppliers, some 6 to 12 months after divestiture, to monitor the success of the divestiture. This will allow us to ensure that the divestiture satisfied the requirements of the order, and improve our understanding of the features that lead to success and failure of divestiture orders.
I should also note in this connection a change in policy instituted by the Commission last year that had a major impact on the typical form of its merger orders. We had routinely included a requirement that the respondent obtain the FTC's prior approval for future transactions in the same market, usually for a period of 10 years. The general rule now is that the FTC will not use prior approval or prior notice requirements except in special cases: Where there is a credible risk that the respondent may renew its acquisition attempt, we will require a narrow prior approval provision limited to such a transaction. And where there is a credible risk that the respondent may attempt a non-HSR-reportable transaction that would be anticompetitive, the FTC will impose a prior notice requirement for non-reportable transactions. We have been reviewing a large number of petitions to delete such prior approval provisions from existing orders, and the Commission on our recommendation has granted such petitions in 22 cases thus far, with another 14 pending.
That is a look back and forward at merger enforcement. Let me turn now to the non-merger area.
Despite the significant competing demands from record levels of merger enforcement, we have had an active and innovative non-merger enforcement program.
First, let me note the freshest news. On Tuesday, the Commission handed down a decision in California Dental Association(16) that represents an important victory for our program. The Commission majority struck down restraints on truthful price advertising as per seunlawful, and found other restraints unlawful on a rule of reason analysis. The bare result may seem unsurprising, but the majority's approach, I think, will generate considerable discussion. It is a little early for me to presume to deliver an analysis, however.
Second, since I arrived a year ago, the Commission has accepted eight new consent agreements in non-merger cases, all but two of which are now final, and has made final three others accepted shortly before my arrival. We have also gone to new lengths, in our most recent cases, to make our process more transparent, to explain the enforcement logic that underlies significant consent orders, a factor that can be elusive when so many of our cases end in consent orders. The need for such increased transparency was a significant theme of witnesses in last winter's hearings on the status and future of antitrust and consumer protection. Two especially interesting settlements have been accepted for comment thus far this fiscal year:
In Dell Computers,(17) accepted for comment last Fall, Dell agreed to drop patent claims affecting the many personal computers that employ the "VL-bus" standard. The Commission's complaint charged that Dell had certified, during industry standard discussions, that it knew of no patent, trademark, or copyright that the bus would violate, but later contacted members of the standard-setting association and asserted that the standard did violate a Dell patent. The Commission's action was described as the first time federal law enforcement had acted against a company for seeking to use a standard-setting association to impose costs on its rivals.
In RxCare,(18) the leading provider of pharmacy network services in Tennessee agreed to stop requiring so-called "most favored nation" clauses in its contracts with pharmacies. These clauses have required that, if a pharmacy in the RxCare network agrees to accept a lower reimbursement rate for providing prescription drugs to any other plan's subscribers, it must afford RxCare the lower rate as well. The Commission alleged that RxCare's network includes more than 95 percent of chain and independent pharmacies in Tennessee. Given this market share, and the amount member pharmacies stood to lose by accepting lower reimbursement from other plans, it alleged that RxCare in effect established a price floor for prescription drugs in Tennessee.
It is particularly worth noting that, while we could have approached this case as one involving per se liability, we felt it was important -- particularly in an area that could have been characterized as contributing to health care cost containment -- to explain the anticompetitive effects.
Other consents have included four charging price fixing (Reebok International,(19) Korean Video Stores,(20) Physicians Group, Inc.,(21) and Council of Fashion Designers of America(22)), two charging concerted boycotts (Puerto Rican Physiatrists(23) and Santa Clara Motor Car Dealers(24)), two charging market allocation (Time Warner/Summit(25) and Federal News Service Group/Reuters America, Inc.(26)), and one charging concerted restrictions on advertising (Port Washington Real Estate Board(27)).
Reebok International Ltd., the largest manufacturer of athletic and casual footwear, settled charges that Reebok and its Rockport Company subsidiary attempted to fix the resale prices at which retailers sold their products.
The Medical Association of Puerto Rico, its Physiatry Section and two of its individual physiatrist members settled charges that they conspired to boycott a government insurance program in a attempt to force the insurers to adopt an exclusive referral rule that would reimburse patients for physical therapy services only if referred for those services to a physiatrist.
The Korean Video Stores Association of Maryland settled charges that it conspired to fix the rental fees of Korean-language video tapes in its member stores in the Washington, D.C. metropolitan area.
The Danville, Virginia Physicians Group, Inc. settled charges that it prevented a managed care plan from establishing a competing health care facility in the area;
The Council of Fashion Designers of America, settled charges of attempting to reduce competition among themselves by fixing the prices they paid for modeling services or modeling agency services;
Port Washington Real Estate Board settled charges that it restricted the use of exclusive agency listings in an attempt to control the commission paid by a homeowner when residential property is sold;
Summit Communications Group, Inc. settled charges of conspiring to allocate customers for cable television systems;
Santa Clara County Motor Car Dealers Association settled charge that it engaged in an unlawful group boycott to cancel and withhold advertising in an area newspaper that published an automobile buyers' guide informing consumers how to determine the purchase price against the dealer's wholesale price of a new car; and
Reuters America, Inc. and Federal News Service Group settled charges of agreeing to allocate markets for news transcripts.
We have also been litigating an administrative complaint charging that the International Association of Conference Interpreters(28) and its U.S. affiliate members conspired to fix fees.
I also want to mention a project we have set in motion to reexamine possible types of integrations among health-care providers that may not fully be taken into account in existing case law and analysis, but that may nonetheless offer efficiency benefits that should have a bearing on antitrust treatment of inter-provider agreements. We will look at whether types of integration among participants in health care provider networks, other than capitation and similar risk sharing arrangements, are likely to produce efficiencies that should trigger rule of reason analysis. This project seeks to respond to criticisms that antitrust enforcement in this area is out of touch with the new and evolving economic realities of health care.
Delay in Nonmerger Matters
I am aware of persistent criticism directed at both the Commission and the Antitrust Division that nonmerger investigations have a tendency to go through long unexplained periods of dormancy, leaving private parties uncertain about whether the matter is alive or dead. This is not only inefficient, but can leave real problems unremedied for unduly long periods.
The biggest problem we confront involves resources. The merger wave of the last three years has nearly doubled HSR filings, requiring diversion of resources from nonmerger investigations, delaying some ongoing investigations and the start of new ones. We cannot let that continue. Mergers will continue to be an important enforcement priority, but we need to do more in the nonmerger area with the resources we have by:
- eliminating some layers of middle management review and attendant delay
- imposing strict but realistic deadlines on the staff and on parties
- monitoring closely the progress of investigations and being willing to make a judgment call earlier in the process as to whether the investigation is worth continuing, and whether its focus needs to be narrowed or shifted.
- seeking authorization to use compulsory process at the earliest appropriate point, in order to avoid extended games of cat-and-mouse over voluntary production and to widen the range of cooperative sources of discovery.
- setting limits on consent negotiation periods, and being willing to recommend a complaint if the limits are exceeded.
Can we carry off this ambitious goal? The RxCare case suggests we can. In that case, we went from initial investigation to complaint recommendation in less than six months by keeping our efforts focused on the key allegations of concerns, by not tolerating delays in doccument production and by setting meaningful deadlines for actions and adhering to them.
Although less visible to the public, issues involving how we manage ourselves and how we make decisions are critically important to the end product. There are some achievements in this area that are worth noting.
Working relationship with the Bureau of Economics
At various points in recent Commission history, the term that most aptly described the "working relationship" between the Bureau of Competition and the Bureau of Economics was "oxymoron." I am not referring to mere differences of opinion. Anyone who has worked in antitrust enforcement, at the FTC or elsewhere, knows that attorneys and economists do not always see a case through the same lens. If they did, for that matter, we could dispense with one or the other. But there is a difference between expecting each to contribute a different perspective and allowing a spirit of reflexive opposition to become ingrained.
Since the day we came on board, Jonathan Baker and I have stressed to our staffs, both separately and collectively, our strong determination that the attorney-economist relationship will be one of respect and mutual contribution, and I think it is working well. A lot of that credit goes to Jon and his antitrust deputy, Gary Roberts. But we all take a lot of pride in the efforts our two staffs have made to improve working relationships.
Strength of Bureau Staff
As an FTC veteran returning after a fifteen-year hiatus, I have been enormously pleased -- but not surprised -- by the quality of the staff in the Bureau of Competition and elsewhere in the agency. They are some of the best, hardest-working, most dedicated attorneys I've encountered anywhere. Part of our early effort has focused on maintaining and growing the quality and skills of that staff.
Entry-level Hiring and Training
We have placed heavy emphasis on both our hiring and training.
Hiring: In spite of budget limits, we've conducted extensive on-campus interviews at law schools, resulting in an outstanding incoming class of recent law school graduates. We will have a comprehensive summer program as well. The qualifications of our permanent and summer hires compare favorably with the hires at the very best law firms in the country.
Training: We've put in place a much expanded training program for first year attorneys, and revitalized our advanced training for experienced attorneys. Our first effort was an intensive four-day orientation for new attorneys, and training is continuing for them throughout the year. The schedule for an advanced trial advocacy course and several other programs of an advanced nature is nearly in place. In addition to more formal training, we've also been conducting a series of what might be called "brown-bag seminars," including such topics as document discovery in the electronic age, and how to maximize the utility of economists.
Filling Supervisory and Experienced-Attorney Positions with Talent from a Variety of Backgrounds
Promotion from Within -- I've been especially gratified by the opportunity to fill a number of management and senior attorney positions by recognizing distinguished service within our own ranks:
Mark Whitener has been promoted to Deputy Director, after extended "acting" service in that role, from a previous position of Assistant to the Director.
Ann Malester has been promoted to SES as a merger A.D., having worked her way up from the ranks over a number of years.
Phil Broyles will shortly assume a position as a merger A.D., moving from the post of Cleveland Regional Director. Phil has worked at the Commission since law school.
Tom Dahdouh has recently joined the Bureau's Office of Policy and Eval, moving from Commissioner Varney's staff (and previously that of Commisioner Yao).
How you gonna keep 'em down on the farm after they've seen FTC? -- I've also been enormously pleased to be able to draw on some FTC veterans who went on to other successes and now return to bring us the benefit of their enhanced experience:
George Cary has joined us as Senior Deputy Director of BC, coming from the firm of Irell & Manella (where he has worked since 1984). Before going to private practice, George was a senior trial attorney in merger litigation in BC from 1976 to 1984. George brings a wealth of litigation experience and real world savvy to the agency.
Bob Leibenluft is now my A.D. for healthcare, joining us from Hogan & Hartson (where he has been since 1981). Before that, he was an attorney advisor in the FTC's Office of Policy Planning.
Judy Bailey is now my A.D. for administration, having returned to the Bureau from the FDIC, where she worked from 1991 to 1996. Before that, she served in the Office of the BC Director from 1990 to 1991.
DOJ's loss is our gain -- Needless to say, we also recognize distinguished service at the Antitrust Division, and are happy to welcome them to the expansive world of Section 5:
Will Tom is now the A.D. for policy and evaluation. Prior to joining us, he was senior counselor to Anne Bingaman.
Although I don't get 100% of Ann Jones's timeon BC matters, I'm nonetheless gratified to be working with her in her new position as Los Angeles Regional Director. Ann served as Special Litigation Counsel to Anne Bingaman from 1993-95, and was then a partner at Blecher & Collins before joining us.
Richard Liebeskind has become a senior litigator in BC, having served as an Asst. Section Chief at DOJ and then in the U.S. Attorney's office.
Selections from the Private Bar -- And of course it is always great to steal talent from the private bar:
Anthony DiResta is one example. Again, he is not BC's acquisition, but I will have the opportunity to work with him in his position as our new Atlanta Regional Director. Anthony had been a partner since 1984 at Varner, Stephens, Humphries & White.
BC has recently hired Patrick Roach as a senior litigator. Patrick had been with Bell, Boyd since 1977.
And let me mention another distinguished acquisition in the near future. Debra Valentine, who came to the Commission a few months ago from O'Melveny & Myers to serve as Deputy Director for Policy Planning, will join the Bureau as A.D. for International matters after she completes her work on the results of last winter's policy hearings.
The point is that I have been extremely pleased not only to find a strong staff and management corps in place, but by our ability to attract very talented people from a range of backgrounds to fill our openings.
I won't say we couldn't use more people, but I wouldn't hope to find better people.
Those are the highlights of what has been a challenging, sometimes frustrating, but most often rewarding, year. It has been a privilege to associate with such a dedicated and talented group of professionals. We look forward to another productive year.
(1) Similarly, the views expressed here are my own, and not necessarily those of the Commission or any individual Commissioner.
(2) Hoechst AG, Dkt. C-3629 (consent order, December 5, 1995).
(3) First Data Corp., Dkt. C-3635 (consent order, Jan. 16, 1996).
(4) Compagnie de Saint-Gobain, FTC File No. 951 0096 (consent agreement accepted for comment, Feb. 26, 1996).
(5) Questar/Kern River, FTC File No. 961 0001 (preliminary injunction action authorized, December 27, 1995; transaction abandoned).
(6) Butterworth Hospital/Blodgett Memorial Medical Center, FTC File No. 951 0126 (preliminary injunction action authorized Jan. 19, 1996), FTC v. Butterworth Health Corporation, No. 1:96CV49 (W.D. Mich. filed Jan. 23, 1996).
(7) "A Report on Recent Antitrust Developments at the Federal Trade Commission," Prepared Remarks of William Baer before the American Bar Association's Antitrust Law Section, Chicago, Illinois, Aug. 9, 1995.
(8) Nestle/Grand Metropolitan, FTC File No. 941-0124 (consent agreement accepted for comment Dec. 28, 1994; consent agreement nullified June 7, 1995).
(9) United States v. Sara Lee Corporation, No. 1:96 CV00196 (D.D.C., Feb. 9, 1996).
(10) Sara Lee Corporation, FTC Docket No. C-3523 (Consent order, Aug. 24, 1995).
(11) United States v. Automatic Data Processing, Inc., No. 1:96CV00606 (D.D.C. filed March 27, 1996).
(12) The Commission has proposed several clarifying amendments to Item 4(c) of the Premerger Notification and Report Form as part of a larger group of proposed changes to the Form. 59 Fed. Reg. 30545 (June 17, 1994). Completion of this amendment process currently has a very high priority.
(13) Some examples of orders providing for six month divestiture periods: Sulzer, C-3559 (six months), Mustad International Group, C-3624 (six months); Silicon Graphics, Inc. C-3626 (six months); Reckitt & Colman, C-3306, (six months from the Commission's approval of an acquisition under the order's prior approval provision); Reckitt & Colman order in C-3571 (six months). In Devro/Teepak, File No. 951 0072, when the order is made final the repondent will have only three months to complete divestiture.
(14) Illinois Tool Works, Inc./Hobart Bros., FTC File No. 951-0091 (consent agreement accepted for comment, Feb. 1, 1996).
(15) Scotts/Stern's Miracle Gro, FTC Docket No. C-3586 (consent order, Sept. 8, 1995).
(16) FTC Docket No. 9259.
(17) Dell Computers, FTC File No. 931-0097 (consent agreement accepted for comment, Oct. 26, 1995).
(18) RxCare of Tennessee, Inc., File No. 951 0059 (consent agreement accepted for comment, Jan. 19, 1996).
(19) Reebok International, Dkt. C-3592 (consent order, July 18, 1995).
(20) Korean Video Stores, FTC Docket No. C-3588 (consent order, June 20, 1995).
(21) Physicians Group, Inc., FTC Docket No. C-3610 (consent order, Aug. 11, 1995).
(22) Council of Fashion Designers of America, FTC Docket No. C-3621 (consent order, Oct. 17, 1995).
(23) Puerto Rican Physiatrists, FTC Docket No. C-3583 (consent order, June 2, 1995).
(24) Santa Clara Motor Car Dealers Ass'n, FTC Docket No. C-3630 (consent order, Dec. 13, 1995).
(25) Summit Communications Group, Inc., FTC Docket No. C-3623 (consent order, Oct. 20, 1995).
(26) Federal News Service Group, Inc., FTC Docket No. C-3632 (consent order, Dec. 18, 1995).
(27) Port Washington Real Estate Board, FTC Docket No. C-3625 (consent order, Nov. 17, 1995).
(28) FTC Docket No. 9270 (complaint issued Oct. 25, 1994).