The American Bar Association, Antitrust Section Spring Meeting 1998, Federal Trade Commission Committee
Good morning, and thanks for inviting me back for my third report from the Bureau of Competition. The last two years I have used this opportunity to report to the antitrust bar on some of the pressing issues and cases that are in the cross hairs of the Bureau. With your indulgence, I will follow a similar format this year.(1)
Given the booming economy and the resulting merger wave, you will not be surprised to hear that most of our resources have been devoted to merger investigations. The increase in merger filings over the last 6 years is remarkable. We have gone from 1500 HSR filings in FY 91 to 3700 in FY 97; the FY 98 pace is 25% ahead of last year's record. With no significant increase in resources, we are stretched pretty thin. We also have fewer resources to pursue significant nonmerger matters than we would like. Even so, we have brought a number of significant civil nonmerger actions this year. I'd like to begin my report there.
Our non-merger actions covered a spectrum of different kinds of conduct, but like our merger cases, they share a common characteristic: the facts tell the story. Some of them are not your garden variety antitrust violation, and some arose in settings that are somewhat out of the ordinary. But each of the situations presented a significant threat to competition.
We dealt with the anticompetitive conduct of a power buyer, an agreement of two manufacturers of medical equipment to pool their patents and share royalties rather than duke it out in the market, an anticompetitive supply agreement, an unusual invitation-to-collude strategy that included the purchase of competitors' excess inventory to encourage them to participate in coordinated price increases, and an anticompetitive settlement of private litigation between two manufacturers of electronics equipment. We also dealt with conduct that we see all too often: members of professions who agreed on one or two things too many. I'll briefly discuss each of those cases in turn and finish up the non-merger review with a few comments on the Ninth Circuit's decision in California Dental Association.
Exclusionary Conduct by a Power Buyer: Toys R Us. In contrast to the common argument in merger cases that a power buyer will defeat anticompetitive conduct by suppliers, this case involved a power buyer in the reverse role -- conspiring to exclude its retail competitors. Last September, an administrative law judge found that Toys R Us had violated Section 5 by orchestrating a boycott of warehouse clubs, like Costco and Sam's Club, using its power as the leading retailer of toys to coerce toy makers to cooperate.(2)When faced with a Toys R Us threat not to purchase toys sold to warehouse clubs, manufacturers indicated that they would go along with the Toys R Us scheme if their significant competitors also went along. After Toys R Us assured manufacturers that their competition was indeed complying with the Toys R Us policy, toy manufacturers agreed with Toys R Us and each other not to sell the same toys to the clubs as were being sold to Toys R Us, or to package two or more toys into more expensive, less desirable "club specials." These club specials raised the clubs' costs and inhibited consumers from readily comparing the Toys R Us prices to those of the warehouse clubs. The vertical and horizontal agreements orchestrated by Toys R Us effectively eliminated the pricing pressure the clubs exerted on Toys R Us.
Some have asked whether the Toys R Us case suggests that all nonprice restraints by a firm with a similar market share face antitrust challenge. The answer is no. It is important not to mistake the Toys R Us policy for a typically benign non-price vertical restraint. In an exclusive dealing situation, for instance, a retailer may agree to deal solely with another company for the purpose of promoting interbrand competition. These agreements serve to induce a retailer to provide pre-sales or other valuable services to consumers that otherwise would go uncompensated. The Toys R Us case differs in important ways from a typical exclusive dealing agreement. First, there were no procompetitive efficiencies associated with the Toys R Us scheme. Toys R Us claimed that it bore substantial risk of buying in bulk early in the season, acted as a showroom for the toys, conveyed substantial information to manufacturers about sales levels for each toy, and provided other valuable services. The evidence showed, however, that Toy R Us was already compensated for these services. Thus, there was no risk of free-riding. Moreover, evidence showed that the program was created because Toys R Us wanted to thwart competition by the club stores. The argument that Toys R Us was a free-riding victim seems to have arisen only after we began our investigation.
A second important distinguishing feature of the Toys R Us case is the horizontal agreement among toy manufacturers that TRU orchestrated to ensure compliance with its wishes. Toys R Us supplemented its vertical agreements by relaying assurances between manufacturers that each would comply if the others did too. This "belt and suspenders" approach ensured that all would be affected equally and no one manufacturer risked disproportionate harm from discontinuing sales to the clubs -- that is, that manufacturers would no compete in this respect to sell to the clubs.
The Commission heard oral argument in the case February 19th; we expect to see a decision in a few months.
Anticompetitive Patent Pool: Summit Technology/VISX. Patent pooling can offer a lawful and procompetitive means of resolving situations where firms possess patents that otherwise would block each other from getting inventions to market. But, where the pool eliminates meaningful competition between firms and creates a jointly administered monopoly, consumers suffer. We challenged the latter last week in a case involving Summit Technology and VISX, the only two FDA-approved manufacturers of lasers used in photo refractive keratectomy ("PRK") to treat vision disorders.(3) The Commission complaint charges that both companies had the intellectual property and other assets to enter the market independently, but instead formed a patent pool and used it to fix prices, establishing a $250 licensing fee payable to the pool each time a laser produced by either was used to perform PRK, and splitting the proceeds according to a formula. Thus, they fixed a price floor for the laser surgery procedure. The two firms also agreed that neither would license its technology without approval from the other, thereby eliminating licensing competition as well.
The complaint also charges that VISX obtained one of its key patents through a pattern of fraud and inequitable conduct, and that the patent should be rendered invalid and unenforceable. More specifically, the complaint alleges that VISX intentionally withheld from the Patent and Trademark Office highly material "prior art" -- in other words, important information about the state of knowledge prior to VISX's supposed invention -- that might prove that the claimed invention was not "novel," a requirement of the patent laws. The complaint also charges that VISX settled a patent interference in violation of Patent and Trademark Office rules, assigning the patent to someone who was not the true inventor in order to cover up fraud by the rightful patent owner. Under such precedents as Walker Process andAmerican Cyanamid it is clear that fraud and inequitable conduct in prosecuting patents and in settling a patent interference constitute violations of Section 2 of the Sherman Act and Section 5 of the FTC Act.(4)
The staff estimates that the consumer harm last year from the suppression of competition for this new surgical technique was some $30 million, and unless the pool is broken up, will grow dramatically as the popularity of the PRK procedure increases.
This is not an all-out assault on patent settlements, which are an important device for resolving disputes. But the case should remind counsel and their clients to look carefully at the terms of any patent settlement to make sure that it doesn't impair head-to-head competition between the parties that otherwise would have existed. This case also reminds us that, while the potential harm to competition from unwarranted pooling arrangements is great, their detection is normally difficult. Indeed, that is why in recent years Bill Baxter and Joel Klein have both argued that a mechanism needs to be established to notify antitrust authorities whenever competitors settle significant patent disputes.(5) The effort required by our staff to uncover this scheme and the interim harm consumers suffered confirms the wisdom of that approach.
Anticompetitive Supply Agreement: Great Lakes/Ethyl. Just a couple of days ago, the Commission accepted for comment a consent order arising from an anticompetitive agreement between the world's two largest manufacturers of lead antiknock gasoline additives, Octel and Ethyl.(6) Our complaint alleges that between late 1993 and early 1994, Octel and Ethyl agreed that Ethyl would stop manufacturing lead antiknock compounds and, in return, Octel would supply Ethyl with a limited volume of lead antiknock compounds. The complaint charges that this agreement, combined with particular portions of the resulting supply agreement, decreased competition between Ethyl and Octel. By tying the maximum amount of product Ethyl could receive to a percentage of Octel's total capacity, the supply agreement prevented Ethyl from increasing output to defeat any Octel price increase. And Ethyl's cost for the product was tied to the retail price Octel charged its customers. This allowed Octel to increase Ethyl's costs, and possibly Ethyl's price, by raising its own retail prices. Finally, another provision of the supply agreement, which required that Octel disclose its average retail price to Ethyl, made it easier for the firms to overcharge consumers because one firm knew what the other was charging.
Under the order, the supply cap would be lifted, which should enhance Ethyl's incentives to price aggressively. The order would also eliminate the agreement provisions that tie Ethyl's purchase price to Octel's retail price, and prohibit disclosure between the firms of prices to customers.
Invitation To Collude: Stone Container. The Commission's most recent invitation-to-collude case involved an innovative strategy -- shut down your plants, buy up your competitors' excess inventory to lessen the incentive to cut prices, and let them know what you're up to. In late February, the Commission accepted for comment a consent with Stone Container Corporation to settle charges that, following a failed attempt in 1993 to achieve a price increase for linerboard -- used for the inner and outer facing of corrugated boxes -- Stone surveyed its competitors by telephone to determine the dimensions of their inventory, and subsequently contacted competitors' senior officers to purchase inventory and inform them of its plan to take extraordinary downtime. The complaint also charges that these moves "constitute[d] an invitation by Stone Container to its competitors to join a coordinated price increase," which, had it been accepted, "was likely to result in higher prices, reduced output, and injury to consumers."(7) Needless to say, these or any similar practices that tend to promote coordinated pricing action are of serious concern. While it has often been pointed out that law enforcement can hardly require that oligopolistic competitors make pricing decisions unconscious of each others' actions, practices that invite explicit coordination can and should be policed.
Anticompetitive Settlement of Private Litigation: Sensormatic/Checkpoint. A consent order accepted for comment in January involves Sensormatic Electronics Corporation and Checkpoint Systems, Inc., and would overturn an anticompetitive feature of a settlement of private litigation between the two companies over supposedly deceptive comparative ads.(8) Checkpoint had run an ad in 1993 alleging that components of Sensormatic's electronic merchandise surveillance system could damage recorded media exposed to it. In their private settlement of the ensuing lawsuit, the parties agreed to refrain from "negative" advertising about each others' products. The complaint accompanying the proposed order charged that this agreement served to restrict advertising that could provide important information to consumers, including information about harm to retail products and even to certain medical devices worn by consumers.(9)
Restraining such information can harm both consumers and legitimate competition. As the Supreme Court observed in Indiana Federation of Dentists, agreement not to compete with respect to information provided to consumers "impairs the ability of the market to advance social welfare by ensuring the provision of desired goods and services to consumers at a price approximating the marginal cost of providing them," and limits consumer choice by impeding the "ordinary give and take of the marketplace."(10)
Price-Fixing by Health Care Professionals. We remain active in the health care field. Our efforts involve both educating health care professionals concerning the rules of the game and enforcing the law against those who disregard them. Eighteen months ago, the Commission and DOJ amended the Health Care Guidelines to provide further guidance on joint activity by physicians.(11) We regularly provide advisory opinion guidance to those who seek it. Nonetheless, we continue to encounter price-fixing activity by physician groups that has no legitimate justification. There are three recent examples. In Mesa County IPA the Commission charged a large physician group in southwest Colorado with both fixing prices by acting as exclusive bargaining agent for its members in dealing with health plans, and with excluding health plans from entering the area by collectively refusing to deal.(12) A complaint issued earlier this year charged Parkside Kidney Stone Center, which is owned by a group of urologists in the Chicago area, with agreeing to impose a uniform price for the professional lithotripsy services of urologists who used Parkside's lithotripter to treat kidney stone.(13) Parkside had a legitimate basis for establishing a set fee for use of the lithotripter, but they had no legitimate right to insist that all doctors charge the same professional fee. Last October, the College of Physicians and Surgeons of Puerto Rico and related medical groups were charged with taking collective action to attempt to raise their reimbursement level under a program developed by the Commonwealth government to provide health care coverage for the 30% of the Puerto Rican population that is uninsured. The College called an eight-day strike, with members closing their offices and, in some cases, canceling elective surgery without notice. With the cooperation of the Commonwealth government, we reached a settlement that resulted in an injunction and a $300,000 payment to a catastrophic fund to be administered by the Puerto Rico Department of Health.(14) Restitution of this sort is appropriate in a case like this where professionals have conspired to inflict higher prices -- whether on the public purse, individual patients or their insurers.
Cal Dental -- What It Does and Doesn't Mean. While I'm on the subject of anticompetitive association activity, I should note the past year's development in the Commission's California Dental Association case.(15) Two years ago, the Commission's March 1996 decision in that case condemned certain horizontal restraints on price advertising as per se illegal and held these restrictions and other, nonprice advertising restraints illegal under a quick look rule of reason analysis. Last October, the Ninth Circuit upheld the decision but overturned the Commission's per se analysis of the price advertising restraints.
At issue in Cal Dental were broad, categorical bans on such truthful and nondeceptive price advertising as claims of "low" or "reasonable" fees. The Commission concluded that these bans merited the same per se condemnation that direct horizontal price restraints receive. It relied on precedents that attested to the essential role of price advertising in price competition, and noted that while there was room even in the context of per se analysis for a defense based on demonstrable efficiency benefits from the restraint in question, CDA had not established such benefits.
The Court of Appeals(16) affirmed the order but would not buy into the Commission's use of per se analysis for the price advertising restraints. It sustained the Commission's alternative finding of a violation on the abbreviated rule of reason analysis.(17) The court acknowledged "some support among older cases" for the Commission's per se approach, but reasoned that more recent cases had limited per se categories "to price fixing, output limitations, horizontal market divisions, tying, and group boycotts," adding that the Supreme Court and the Ninth Circuit itself "have been unwilling to expand the categories of conduct subject to the per se prohibitions."(18) "This is especially true," the court declared, "where the economic impact of the restraint is not immediately obvious . . . and where the restraint is a rule adopted by a professional organization."(19)
The court appears to have been concerned that the rules at issue "do not, on their face, ban truthful, nondeceptive ads. The allegation instead is that the rules have been enforced in a way that restricts truthful advertising." The court characterized the rules themselves as having been "promulgated by a professional association for the apparent purpose of preventing false and misleading advertising," and said that "[t]he value of restricting false advertising (which may itself violate the FTC Act) counsels some caution in attacking rules that purport to do so but merely sweep too broadly." This characterization raises a factual issue, of course -- were CDA's rules and interpretations really the result of excessive zeal in the battle against untruthful advertising, or instead of discomfort with price competition and the search for a respectable ground for stopping it? -- but perhaps the court was saying that parsing such intent evidence is not the stuff of per se condemnation.
It is important to note, however, that the court did not close the door on per se status for price advertising restrictions. Rather, it observed that "[i]t may be correct that some types of price advertising restrictions amount to bans on price competition that warrant per se condemnation."
Choosing Civil Conduct Cases
Because our merger workload has almost tripled in the last few years, we need to be selective in deciding where to use our nonmerger resources and what types of cases to bring. Let me share a few thoughts about some of the factors we consider when deciding whether to go forward with a nonmerger investigation.
First, what is the likelihood of ultimately bringing an enforcement action? We can not afford to investigate cases where the preliminary facts do not suggest a likelihood that there is a violation of law. Thus, we carefully analyze both the facts behind a complaint and the legal theory before committing substantial agency resources. The statistics suggest we are on track. In over seventy percent of the formal investigations completed in the past three years, we have found a law violation and secured relief.
Second, what is the impact on consumers? As in all of our enforcement efforts we must ask how consumers will benefit. The benefit need not be as substantial as Toys R Us, where millions of consumers purchase the relevant product, or in Summit where millions of consumers potentially faced overcharges. Sometimes, we bring cases in relatively small markets, as in many of our health care cases, where the impact of a local price fixing conspiracy in smaller in comparison but can be substantial for the affected consumers.
Third, are we sure that this is an antitrust issue in the first place? Some matters that are presented to us in the guise of antitrust complaints turn out to involve, not competition issues, but rather questions under contract or intellectual property law. This may be true, for example, where a manufacturer has cut off a distributor, who may have had an express or implied supply contract, in order to adopt what it regards as more efficient distribution arrangements. Without evidence that the termination injured competition, the dispute should be handled by the parties themselves.
Fourth, what is the deterrent and precedential value of the case? Sometimes we investigate and bring cases not simply because of the immediate market impact, but also because our enforcement actions help clarify the law for others. Enforcement actions, such asParkside or Mesa County, will apply fairly straightforward concepts of joint venture law to somewhat new market environments. Other cases, such as Stone Container or Dell Computer,(20) provide guidance in areas such as invitations to collude or standard setting, where there is relatively little case law. In both types of cases, the enforcement action goes beyond the specific case by helping to clarify the law and guide private actors. Settlements of conduct cases in areas where there is little judicial precedent can be of value to lawyers counseling their clients. For that reason, we continue to put more details about our factual analysis and legal theories into Commission complaints and into analyses to aid public comment.(21)
In a time of limited enforcement resources we need to find ways of being more effective. One way is to work with other enforcement bodies wherever possible. In last year's American Cyanamid(22) case -- involving price fixing in agricultural chemicals -- the state attorneys general did much of the leg work. I expect there will be cases like that in the future. A second way of husbanding scarce resources is expediting the administrative process. The Commission streamlined that process a couple of years ago with the expectation that an administrative decision would be issued within one year after the case is filed. The three administrative actions brought by the Commission since then all were resolved before trial. But the ALJ's applied the new rules and moved the cases through pretrial in record time. The Commission isn't the "rocket docket" yet, but we are headed in the right direction.
I'll turn next to merger review and enforcement. As I already noted, it has been another extremely busy year with the bulk of the Commission's Maintaining Competition resources dedicated to that task. Despite the influx, we continue to be reasonably efficient. Roughly 85 percent of HSR filings are cleared in the 30 day waiting period without a significant investment of investigative resources. Three-fourths of the remainder are looked at closely but also cleared within that first 30 days. Our goal, as always, is to focus our energies on stopping the small handful of mergers which raise the risk of significant competitive harm to consumers.
In the three years I have been in this job, we have worked hard to make sure the process works: securing timely and effective divestitures, ensuring compliance with HSR requirements and order provisions and reducing or eliminating unnecessary burdens on business. I'll report first on the big picture, with emphasis on the effectiveness of our orders and our compliance activities, then on the merger review process. Then I'll discuss some Section 7 case highlights.
Divestiture Results. Last year at this meeting, George Cary and I discussed our efforts to make sure we had better, more workable and more prompt merger remedies. Frankly, in the past, most of our energies as a Bureau had been devoted to negotiating settlements and then moving on to the next HSR filing. There was a perception in the private bar and business community that -- stealing a Bill Baxter line -- "we liked to catch 'em but didn't like to clean 'em." But the true test of our success is not the number of settlements we negotiated for but whether the divestitures they called for promptly restored competition to affected markets. Divestitures took too long -- averaging well in excess of a year -- and many failed to achieve their remedial purpose. So we changed our approach, emphasizing the importance of identifying buyers before a divestiture order is approved, making increased use of "crown jewel" and trustee order provisions, and shortening the time period for parties to complete a divestiture.
The latest evidence suggest that these approaches continue to pay off. Two years ago, the average time from issuance of a final order in a merger case to divestiture was 15 months. By last year, we reduced that number to seven months. For Fiscal Year 1997 and 1998 to date we have reduced that time to an average of only 3 months. It is hard to demonstrate conclusively a comparable qualitative difference in our divestiture orders. But we have seen fewer post-divestiture compliance problems than in recent years. So we think we are on the right track.
Divestiture Studies. We've also undertaken some studies to evaluate the qualitative operation of earlier divestiture orders -- once divestiture was accomplished, did it do what we wanted it to do? Last year we initiated a comprehensive look at all Commission divestiture orders issued during Fiscal Years 90 through 94. The study approach includes interviewing both respondents and buyers, as well as seeking relevant-market sales data for four years after the divestiture. We are only half done, but my staff's preliminary assessments are:
1. Most divestitures appear to have succeeded. We categorized a divestiture as a success if the buyer was still in the market that was of antitrust concern and had shown that it was operating a viable business. We categorized a divestiture as problematic if the acquired product line was not viable or was viable only in another market.
2. In roughly half the divestitures that we have looked at, the Commission required divestiture of a free-standing business; in the other half, the Commission required divestiture of selected assets. Almost all of the divestitures of a free-standing business succeeded; on the other hand, almost half of the divestitures of selected assets exhibited problems.
3. Smaller buyers did better than multi-divisional corporations as purchasers of selected asset packages.
While the study is incomplete, I think it has already yielded some information we need to apply in consideration of future orders. The comparison between divestitures of free-standing businesses and of selected assets is yielding just about the result one might have expected; it stands to reason that one can be more confident of the viability of a free-standing business. In addition, where the divestiture involves a smaller asset package, we simply may need to do a better job of putting the package together. Another lesson from these cases may be the importance of "crown jewel" provisions in providing more comprehensive asset packages for divestiture where the failure of initial divestiture efforts triggers the appointment of a trustee.
We also conducted a smaller industry-specific study of the effectiveness of divestiture relief we've obtained in pharmaceuticals markets. Probably no single area has been the subject of as many of our merger investigations as pharmaceuticals production. Since the Roche-Genentech case in 1990,(23) the Commission has brought 13 cases involving pharmaceutical mergers, all of which resulted in consent decrees. Often our enforcement efforts involve R&D markets.
We recently conducted a review of those cases in which we required relief in R&D markets. We looked at assets required to be divested, the effect of ongoing relationships between the merged parties and the acquirer of the divested assets, the timing of divestitures, the use of preapproved buyers, and the role of interim trustees. I hope to report on these findings in the near future.
HSR and Merger Order Enforcement
I'd like now to talk about our compliance enforcement cases over the past year. By "compliance" I mean both "back end" compliance, with Commission orders, and compliance at the "front end," with the Hart-Scott-Rodino Premerger Notification statute and rules. The merger enforcement process only works if parties honor their front-end HSR obligations and, for those subject to Commission enforcement actions, live up to their order obligations. We continue to encounter compliance problems at both ends of the process, and we are taking those matters seriously.
Loewen Group, Inc.. On the front end, earlier this week the Commission filed in district court a complaint alleging HSR violations by Loewen Group, Inc., in its acquisition of Prime Succession Inc.(24) The $500,000 civil penalty obtained from Loewen for a negligent HSR violation is significant. Over the years, the Premerger Notification Office has emphasized that, while we generally do not seek penalties for first time negligent violations, negligence is not a defense. We always examine the circumstances of each unlawful failure to file to determine whether we should exercise prosecutorial discretion and seek no penalty. Loewen's failure to file involved the simplest, most basic HSR reportability criterion, the $15 million size of transaction test. Loewen maintains that, despite considerable sophistication in HSR matters, no one realized the transaction would become reportable when, late in a complex negotiation, it increased the amount of voting securities it was going to acquire from $10 million to $16 million.
Two factors especially influenced our decision to seek penalties in this situation. Loewen knew that the acquisition it planned was likely to be of interest to the antitrust authorities. Loewen is one of the three largest owners of funeral homes in North America. It was buying the Prime chain of funeral homes, the fourth largest chain, which operated in many of the same markets as Loewen. Loewen and the other parties to the transaction assumed that an antitrust investigation would result from a Loewen filing and that investigation might result in one or more divestitures. Had there been a premerger antitrust investigation, Loewen might have lost its large nonrefundable down payment because it could not have closed in the time required by the contract. In these circumstances, where there were antitrust issues and the party secured an economic benefit from its failure to file, we determined that Loewen should not be excused for this failure even if the violation was unintentional. The $500,000 amount of the penalty the respondent has agreed to pay is comparable to the penalties we have obtained for other admitted unintentional violations of the Act where aggravating circumstances were present.
Pre-Consummation Information Disclosure. Penalty actions are one way of enforcing the HSR Act. Giving advice and speeches is another. One concern that has been addressed in both ways is pre-consummation activity by merging parties. HSR is intended to maintain the competitive status quo during the waiting period while the antitrust agencies perform their investigation and decide whether to seek to enjoin the proposed transaction. We obtained penalties a couple of years ago in Titan/Pirelli(25) when the seller allowed the buyer to take over some operations of the to-be-acquired assets during the waiting period. Where a definitive contract to acquire is joined with the exercise of operational control through a management contract before the expiration of the waiting period, beneficial ownership is transferred and the HSR Act is violated.
Both the Commission and the Antitrust Division continue to be concerned about the exercise of control over to-be-acquired businesses during the waiting period. At the FTC, we have secured nonpublic agreements from parties to cease exchanging information and to return all documents containing confidential business information that was not being used either for due diligence or for negotiating a consent order with the Commission. While parties have argued that their intent was merely to plan integration rather than to implement it, we do not think this distinction meets the requirements of the Act.
When to-be-acquired firms release information that goes beyond due diligence because they are told to do so by their future bosses, they and their bosses are jumping the starting gun that is supposed to be triggered by the expiration of the waiting period. Early release of confidential business information to the buyer can prejudice antitrust relief, even when a consent order requires divestiture of only a single product. For example, marketing information once given can irretrievably handicap the ability of the business to be divested, or of a firm that buys a divested product line, to sell its products in competition with the buyer. Information that is exchanged for the purpose of planning can also increase interim competitive harm; for example, the existence of a corporate integration plan can induce critical employees to leave during the waiting period, thereby lessening competition between the buyer and the seller. Absent special circumstances, we consider that the release of information violates the HSR Act even when the acquired firm maintains its release is voluntary, unless the acquired firm can show that it would have provided such information to a firm other than the acquiring firm.
Preconsummation information sharing also can violate Section 5 of the FTC Act. That issue arose in connection with Insilco Corporation's acquisition of Helima-Helvetion's aluminum tube manufacturing facilities.(26) There the parties closed a nonreportable HSR transaction, ignoring our warning that we had substantive Section 7 problems with the deal. Our subsequent investigation found not only those problems, but also revealed that prior to closing the parties had exchanged key information on customers, prices and cost. We settled the case last August with an agreement that required divestiture of two mills and associated assets, and also prohibited Insilco from again obtaining or providing, without specific safeguards, certain competitively sensitive, customer-specific price and cost information of the type it had obtained from Helima in premerger discussions. Our concern was that competition was lessened prior to the acquisition.
Schnuck's Markets. With respect to ensuring compliance with Commission orders, three recent cases merit mention. The first back-end case involves the Commission's 1995 order requiring Schnuck's to divest 24 supermarkets in the St. Louis area as a result of its acquisition of National Food Markets. But Schnuck's apparently did not take seriously the asset maintenance agreement in the order that is standard in all FTC divestiture cases. As soon as it closed on the National Foods acquisition, it began treating the divested stores as second class citizens. It closed departments, failed to keep others adequately stocked and staffed, unlisted store phone numbers, and referred customers to Schnuck stores that were not being divested. During the year it had to sell the stores, the sales for those stores declined approximately 35%. At that point, the Commission concluded the divestiture could no longer restore competition. In an enforcement action announced last July, Schnuck's agreed to divest two additional stores as well as to pay a $3 million civil penalty.(27)
The Commission places its main reliance on divestitures to restore competition that would otherwise be injured by unlawful mergers. We wanted to make it unmistakably clear that maintaining the vitality of assets to be divested is an absolutely critical part of compliance with these orders. If respondents fail to take this obligation seriously, the Commission is going to seek equitable relief, in addition to civil penalties, where that is necessary to achieve the purposes of the order.
CVS/Revco. The next case involved a more recent deal -- the $3.7 billion CVS/Revco merger -- combining entities with about $11 billion in 1996 sales and creating the nation's largest drug store chain by number of stores and the second largest by sales. The divestiture order agreed to by the parties and the Commission required divestiture of 120 former Revco stores or pharmacy counters, 114 in Virginia and six in the Binghamton, NY area, in order to maintain the level of competition in these markets that existed pre-merger, especially as to retail sale of pharmacy services to third-party payors.
CVS failed to execute properly on its obligation to provide the buyer all the assets needed to step into its shoes. Just before transferring the pharmacies at issue to Eckerd, the divestiture purchaser, CVS had removed its automated computer prescription system, resulting in substantial difficulty in accessing customers' prior prescription records. Last week, the Commission filed an action in federal court that included an agreement from CVS to pay a $600,000 civil penalty because it, like Schnuck, had failed to maintain adequately some of the assets it had agreed to divest.(28)
Rite Aid. Another failure to honor divestiture obligations involved Rite Aid, operator of the country's largest chain of drug stores. In late February, Rite Aid agreed to pay a civil penalty of $900,000 to settle charges that it failed to divest three drug stores in Maine and New Hampshire under a 1994 order(29) issued in connection with its acquisition of LaVerdiere Enterprises, Inc.(30) Divestiture was eventually accomplished under a Commission-appointed trustee. This penalty may seem large for a violation involving only three stores, but the evidence indicated that Rite Aid had made essentially no effort to carry out its obligation to divest. Again, we cannot be effective with the limited resources we have without insisting that respondents take very seriously the obligations they undertake in consent orders.
Making the Process Work
As I noted in introducing the merger section of this report, making the process work continues to be an important part of our responsibility as public servants. Ongoing concerns on our radar screen include clearance delays, the burdens of second requests and disclosure of the basis for our enforcement recommendations.
Clearance Delays. Delays in the granting of clearance to the Commission or the Antitrust Division to pursue particular matters are, we fully appreciate, a problem not just for the two agencies but for the parties filing under HSR. If the investigative staff are late getting started, there is a risk that second requests will issue that might otherwise be avoided. The 1995 revisions to the clearance process seem largely to have expedited clearance decisions. In the last 9 months or so, I have heard occasional expressions of concern that disputes between the agencies might be slowing down the process. We recently looked into the issue. We found that some matters have not been cleared to one agency or the other until late in the 30 day waiting period. But in most cases, we also found that the timing was not due to disputes over who should handle the matter. Rather, the discovery of a Section 7 problem arose late in the waiting period where, for example, a credible customer complaint surfaced. Given the number of HSR filings the two agencies are juggling, it is not surprising that not all potential problems are quickly identified. Where problems come to our attention late, however, we do have a withdraw and refile option that works to make sure the burden of second request is not imposed where it may not be necessary. I realize this is not a perfect solution, but it gives the parties an alternative to assuming the burden of a second request.
Second Request Burdens. The 1995 reforms also addressed second request burdens by adopting a standardized format for both agencies and providing an appeal mechanism by those who cannot reach agreement with staff on modifications. The reforms have made some difference. In my first two years, the average second request production dropped dramatically. I am concerned by the size of some of the document productions in response to HSR second requests in the last year. In some cases, the responsibility for the large production burdens lies with parties who have made the tactical decision to simply comply with the Second Request without negotiating reduction in burden. But, in other cases, I think the staff has had difficulty deciding whether reduced production can be accomplished without losing access to key evidence. We are working internally and with practitioners to see what can be done to further narrow the scope of these requests, while still providing our investigative staff with the material they need. There's no magic solution, but we'll keep plugging.
Requests by Outside Parties for More Disclosure of the Facts and Economic Models. Another recurrent issue is the parties request for disclosure of the evidentiary facts and economic models on which a staff enforcement recommendation is based. I appreciate the parties' desire to understand the nature and extent of our concern. It is in your interest and ours to have an informed discussion on the merits of an enforcement recommendation. We are committed to making sure that you understand why staff is making an adverse recommendation. In evaluating whether this problem is really serious, we need to look at whether the Commission today and the Bureau Director are getting knowledgeable, focused counter-arguments from the parties about the competitive concerns raised by the staff. I believe that we are. It is not clear that discovery of the fruits of the staff investigation is necessary to informed advocacy by the parties before the Commission.
In addition, confidentiality concerns limit the extent of what we can say. We cannot under law disclose the identity of third party complainants. That is a sensible rule. We have enough trouble as it is getting customers and competitors to cooperate where they fear alienating a firm with market power. On disclosure of econometric models, we are prepared to engage in a dialogue in appropriate cases about what a useful model might look like. But we obviously have concerns about chilling the candor of our internal analytical process. And the parties need to realize that providing data to us late in the process and starting the 20 day clock for consummation of the merger means we won't have anything to share until we are in court.
The Year's Merger Cases
Let me report on some of the more notable merger cases we have brought within the past year.
Over the last year, we've brought four injunction actions seeking to halt in their entirety mergers the Commission viewed as anticompetitive. The number itself is worth noting as at least partial refutation of the view that HSR has evolved into a regulatory device through which merger transactions are just nipped and tucked to our specifications. Certainly, there are instances in which we can reach agreement to alleviate concerns about discrete anticompetitive elements of transactions; but as these injunction cases illustrate there are a significant number in which we and the merging parties "agree to disagree" and duke it out in the traditional way. The message of the last year is that the Commission is prepared to go to court where it sees a merger as so flawed that it cannot be fixed.
Staples/Office Depot. The stand-out event of the past year was clearly the Staples/Office Depot challenge, at that point the largest litigated merger challenge in many years. Staples and Office Depot are two of the three leading office supply superstores chains in the U.S. The two firms together operate about 1,000 superstores and compete head-to-head in numerous metropolitan areas across the country. In 15 major metropolitan areas, including Washington, D.C., Baltimore, San Diego and Tampa-St. Petersburg, Staples and Office Depot were the only superstores, and the merger would have resulted in a monopoly in those markets. In 27 other metropolitan areas, the two firms had only one other superstore competitor, Office Max. The merger also would have eliminated significant future competition in areas where one of the firms was planning to enter the other's territory.
Judge Hogan agreed and wrote a thoughtful opinion that did a masterful job of interpreting judicial precedent and the analytical framework of the Merger Guidelines.(31) In defining a narrow market consisting of office supply superstores, Judge Hogan found the market justified under the 5-10% test of the Guidelines, but saw that the same resulted decided by the multi-faceted market definition approach of Brown Shoe(32) and its progeny. As I have stated elsewhere,(33) I do not see a significant tension between the Brown Shoeanalysis and the unilateral effects concept set out in the 1992 Merger Guidelines. Both approaches are trying to measure the nature and extent of the competitive relationship between the merging parties' products and compare that to the competition they face from other firms.
The Staples opinion also emphasized the similarity of the entry standards enunciated in the D.C. Circuit's Baker Hughes(34) opinion and in the 1992 Merger Guidelines. Judge Hogan used Baker Hughes to find that the parties had not shown that entry "likely would avert the anticompetitive consequences of the merger." When you stop to think about it, it would be hard to conclude that entry "likely would avert" anticompetitive effects without being satisfied that entry would be "timely, likely and sufficient"(35) under the Merger Guidelines.
Judge Hogan's opinion also is the first to consider efficiencies since the Merger Guidelines were amended to provide more insight into the agencies' analytical framework. There too, his opinion made explicit the consistency between the case law and the Merger Guidelines framework. Judge Hogan began with the cases that expressed skepticism towards cost savings claims, and then employed the Merger Guidelines framework to assess whether the cost savings claims of Staples and Office Depot were substantial, unique to the merger and likely to be shared with the consuming public.
I'm very proud of the Staples case -- in no small part because our staff did a fantastic job of converting hard work and rigorous econometric analysis into a win, but more because our success will save consumers more than $1 billion over the next five years.
MEDIQ Inc./Universal Hospital Services. In MEDIQ Inc.'s proposed acquisition of Universal Hospital Services ("UHS"), involving the two largest firms in the country that rent durable, movable medical equipment, the parties offered so-called "fix it first" relief that the Commission determined in August would be inadequate. This acquisition would have given MEDIQ a near monopoly in the national market, and a near monopoly in numerous local geographic markets as well. Competitive concerns were heightened because earlier acquisitions by MEDIQ had led to higher prices. The relief the parties proposed involved Medical Specialties, a firm that currently rents infusion pumps to home healthcare customers. The parties proposed to sell Medical Specialties equipment for rentals, and provide it with an option to lease several facilities. But the new firm would have had a substantially smaller inventory than UHS, which itself was considerably smaller than MEDIQ. Second, customers -- particularly national ones, like hospital buying groups -- testified that Medical Specialties would not have the amount and breadth of equipment, the necessary track record, and the experience with hospitals' needs to replace UHS. Finally, much of the business that Medical Specialties claimed it needed in order to successfully compete in the hospital rental market was under long-term exclusive contracts with UHS and MEDIQ.
The parties were anxious to settle that case and offered terms that we often see, but quickly reject. Their offer would have sold some of their rental equipment to a new entrant in the market, creating the possibility that the new entrant would constrain the merged firm's market clout. But it was clear that the new entrant would not be as effective a competitor over the next two years as the seller. The risks of higher prices from the deal would have been born by consumers. That is a risk the Clayton Act directs us to avoid.
The Commission authorized staff to seek a preliminary injunction.(36) After the parties failed to convince the district court to impose their settlement terms on the Commission, they dropped the transaction on the eve of the preliminary injunction hearing.
McKesson/AmeriSource and Cardinal Health/Bergen Brunswig. More recently, on March 3, the Commission voted to seek PIs to prevent two mergers involving the nation's four largest drug wholesalers, McKesson with AmeriSource and Cardinal Health with Bergen-Brunswig. We filed the two actions in district court here on March 9,(37) and they are scheduled for a joint preliminary injunction hearing in May. If the mergers were allowed, the two survivors would control over 80 percent of prescription drug wholesaling in this country, and we believe would significantly reduce competition in that market, a reduction we'll argue would have a serious bottom-line impact for health care consumers. We look forward to presenting our evidence at a preliminary injunction hearing before Judge Sporkin in May.
Cases Resolved Without Litigation
The Energy Group PLC/PacifiCorp. One recent consent accepted for comment is interesting primarily as an example of the so-called "convergence merger" in the energy field -- convergence between two different but largely vertically related forms of energy, coal and electricity. This settlement was reached in the $10.7 billion acquisition of The Energy Group PLC by PacifiCorp.(38) PacifiCorp provides retail electric service in seven western states: Oregon, Washington, California, Utah, Idaho, Wyoming, and Montana. The Energy Group owns Peabody, which produces about 15 percent of the coal mined in the U.S., as well as a power marketer that trades electric power throughout the U.S. The concerns reflected by the proposed order relate to the onset of deregulation in electricity markets, and the extreme importance we and the Antitrust Division attach to antitrust scrutiny of that process, to avoid losing or diminishing the golden opportunity for competition that it presents. More specifically, the order reflects the importance of two Peabody mines, which it would require to be divested, to particular electrical generating plants that operate as price setters for wholesale electricity in the entire western United States. I should note that we had initially considered a settlement based largely on behavioral restraints. On further consideration, however, we believed this would be unsatisfactory -- in large part because we prefer structural relief that, once carried out, preserves competition through the operation of the market, not through ongoing "regulatory" policing by the Commission.
While I'm on this subject I'd like to endorse Joel Klein's recent remarks in a Federal Energy Regulatory Commission forum about the whole problem of merger enforcement in the midst of the current deregulatory process in electric power.(39) Joel expressed the concern that enforcement in this area was having to go forward in a near-vacuum of actual empirical data about basic issues of how a fully restructured market will actually operate, and what the basic nature of transmission pricing will be where transmission and generation are effectively separated. He noted the danger that mergers may take place in such an environment that, though having little immediate anticompetitive effect, may frustrate the emergence of competition long-range. He suggested a couple of possibilities for avoiding this outcome, including perhaps a limited moratorium targeted on the most problematic categories of electric power mergers, such as those of directly interconnected generators, perhaps with a waiver provision, or a modification of the burden of proof in merger cases during transitions to competition from regulation.
Shell/Texaco. In another case involving a different energy source, last December we reached a proposed settlement with Shell Oil Company and Texaco, Inc. prompted by their plan to combine in a joint venture their refining, transportation and marketing businesses in the U.S.(40) We alleged that the joint venture could raise refined product prices by more than $150 million dollars, and in cooperation with attorney general staffs from California, Washington, Oregon, and Hawaii worked out a package of divestitures including a refinery in Washington, a terminal in Hawaii, and retail gas stations in Hawaii and California.
Some people suggest that the Commission is only concerned about horizontal mergers with very high concentration numbers or a unilateral effects story. Shell-Texaco demonstrates that view is misguided. The primary focus of our competitive concerns was potential coordinated interaction. In fact, in some of the markets the HHIs were less than 2,000. In one market, for the sale of refined gasoline in California, the proposed transaction will raise the HHI by 154 points to 1,635, within the moderately concentrated range.
Although the concentration numbers in gasoline refining may not have been as substantial as in other mergers, we believed that the evidence suggested there was a significant threat of coordinated interaction. As described in our Analysis to Aid Public Comment, we were concerned that in gasoline refining markets the products are homogeneous, and wholesale prices are publicly available and widely reported to the industry. Refiners therefore readily can identify firms that deviate from a coordinated or collusive price. Existing exchange agreements between refiners likely will facilitate identifying and punishing those deviating from a coordinated or collusive price. There was also some evidence of oligopolistic conduct in the past.
Roche Holding Ltd./Corange Limited. And on February 25, a proposed consent was accepted for comment in the $11 billion acquisition of Corange Limited by Roche Holding Ltd.(41) The proposed order would preserve competition in the U.S. market for the most effective drug for dissolving blood clots at the onset of heart attacks, and in a separate market for drug abuse testing reagents. The proposed relief would entail divestiture of Corange's U.S. and Canadian cardiac thrombolytic agent business and its worldwide drug abuse testing reagent business. It would also involve the immediate appointment of trustees to monitor the sensitive transition of divested assets and ensure that the acquirers receive the necessary technical assistance to manufacture and sell the divested products.
Federal-Mogul/T&N, plc. In a settlement within the last month, the Commission on March 6 accepted for comment a consent order in the merger of Federal Mogul and T&N, plc, calling for divestiture of thin wall bearing assets -- these bearings are used in car, truck, and heavy equipment engines -- in that $2.4 billion takeover.(42) Between them, Federal-Mogul and T&N dominate the market for thin wall bearings in the U.S. as well as other countries. We alleged that the two companies together have market shares over 80 percent in each of four markets we identified. Under the settlement, Federal-Mogul would divest the entire thin wall bearing assets of T&N. The parties had proposed divestiture of a partial package of assets, mixing and matching assets from Federal-Mogul and T&N, and had even presented a proposed "up front" buyer. We rejected this approach -- even with a buyer in hand -- as insufficient to provide a strong assurance of preserving competition in this market, because we had doubts about the ultimate success of an unintegrated package. Let me add that we worked closely in this matter with enforcement authorities in the United Kingdom, Germany, France, and Italy. Coordination was important to ensure that competition would be maintained in each geographic market, and in particular that assets to be divested that were located overseas would be available to a buyer who could compete in both the American and European markets. Both the United Kingdom and German actions closely tracked the Commission's order.
S.C. Johnson/DowBrands. The Commission has also recently accepted a consent for comment in S.C. Johnson's billion-dollar-plus acquisition of DowBrands, with an order requiring divestiture of DowBrand's assets related to "Spray 'n Wash," "Spray 'n Starch," and "Glass Plus" to Reckitt & Colman, Inc.(43) This is an example of the "buyer up front" approach that passed scrutiny. In general, we're employing this approach as often as we can in order to expedite divestiture and help ensure that the divestiture package is actually acceptable to a buyer -- though as I noted just now in discussing Federal-Mogul the availability of a specified buyer doesn't move us to abandon our own judgment about the divestiture's long-term effect in restoring competition.
Guinness PLC/Grand Metropolitan PLC. The Commission also struck a blow for competition in premium scotch and premium gin, as well as for international cooperation, in the $36 billion merger of Guinness PLC and Grand Metropolitan PLC.(44) The proposed consent accepted on December 15 was the result of cooperation with the European Commission's Competition Directorate as well as the Canadian Competition Bureau and Mexican and Australian authorities. The divestiture required, of Dewar's Scotch, Bombay Original Gin and Bombay Sapphire Gin assets worldwide. Earlier this week the merged firm announced that the assets would be purchased by Bacardi for $1.9 billion, a record sum in a government mandated divestiture.
Guidance to Practitioners and Intergovernmental Cooperation
Joint Ventures Project. As I noted a year ago, one of the outgrowths of the 1995 FTC hearings on competition in a global, high-tech marketplace was the launching of a project by the Commission's Office of Policy Planning to clarify and update antitrust policies regarding joint ventures and other forms of competitor collaborations, with the hope of generating agency guidelines covering those activities. That undertaking has made substantial progress, and most recently has resulted in a series of roundtable discussions, the last just two days ago, each focusing on particular issues. The Department of Justice Antitrust Division has participated both in these roundtables and in less formal meetings with OPP staff, and fruitful discussions have also been held with the Competition Directorate of the European Community.
International Cooperation. At any given time, about one-half of our pending merger matters have involved contact with foreign antitrust authorities, because either the parties, information, or assets critical to a remedy are located outside the U.S. Parties increasingly recognize that we do communicate, cooperate, and where possible, coordinate our enforcement efforts with foreign authorities. This was demonstrated most recently in the case of Federal-Mogul's proposed acquisition of T&N plc. The FTC worked closely with the antitrust authorities in the UK, Germany, France, and Italy and, through that cooperation, achieved a settlement that resolved competitive concerns arising out of this deal on both sides of the Atlantic.
And, no one should deceive himself that US cooperation with the EC suffered in the wake of the Boeing/McDonnell Douglas case. Even though there was substantive disagreement, FTC and EC officials communicated closely in that case. In the Guinness/Grand Metropolitan merger, US-EC cooperation -- as well as cooperation with Canadian and Australian authorities -- led to a common settlement in the European and American premium scotch market. We routinely communicate as early as either we or our colleagues in Brussels learn of a matter that would appear to involve or affect the other.
In addition to our cooperation in investigations, we are pursuing matters on the policy and procedure fronts. The FTC began its Joint Venture Project last year as the EC was beginning a review of its rules and guidelines addressed to horizontal collaborations. As I noted, FTC and EC staff have discussed issues arising in our respective projects and will continue to do so as our respective studies continue.
As to procedural cooperation, the US-EC positive comity agreement is making its way through the processes in Brussels and Washington and we hope to sign it and put it into operation this year. Likewise for the first Antitrust Mutual Assistance Agreement under the International Antitrust Enforcement Assistance Act -- the IAEAA -- that we reached last year with Australia; it is working its way through the adoption procedures in Canberra and Washington.
Another important development was the adoption by the OECD's Competition Law and Policy Committee in February of a recommendation for cooperation in attacking hard core cartels. We hope that this recommendation will be adopted by the OECD Council this Spring.
Finally, the FTC has participated in the WTO's Working Group on Trade and Competition. That Group will meet several more times this year and then make recommendations to the WTO Ministers. While we believe it is premature for the WTO to begin considering adoption of WTO-enforced rules on competition policy, the Working Group has helped to educate the WTO membership on the role and benefits of a well-enforced competition policy. In that regard, we continue to provide technical assistance to new antitrust enforcers and we are building new relationships that are already resulting in cooperation in cases, and, as a consequence, may result in some new bilateral cooperation agreements. Stay tuned.
Federal/State Cooperation Protocol. And just three weeks ago the Commission, the Justice Department, and the National Association of Attorneys General jointly announced a new "protocol" for how the federal and state agencies will conduct joint and coordinated merger investigations. This protocol, which is largely a formalization of an approach the agencies have been following in recent years, sets out a framework for maximizing cooperation in federal/state merger investigations while minimizing the burden on private parties. It also underscores the importance of protecting confidential information from improper disclosure. The first section details steps for maintaining confidentiality, while the second section details the procedures under which the FTC and DOJ will provide the state AGs with certain types of sensitive information. The third section lays out guidelines for joint investigation, and the fourth deals with the importance of collaboration in the settlement process.
We have benefited from federal/state cooperation, in many cases over the past year, including Staples, Shell/Texaco, American Cyanamid and the drug wholesaler cases. I'm confident that this protocol will make the relationship work even better.
The booming economy and increased level of antitrust enforcement have caused many of you to seek the assistance of talented lawyers and other staff in the Bureau. Some have succumbed to the temptation, and in recent months talented managers such as George Cary, Mark Whitener, Howard Morse and Dave Painter accepted attractive private sector opportunities. A number of BC staff attorneys answered similar calls. While we appreciate the compliment implied in the hiring of Bureau personnel, there is a real cost. We were overburdened to start with and the attrition threatened to put even more burden on a staff whose workload has tripled without the benefit of additional resources.
We took the only option available and went on the market ourselves. The results exceeded our expectations. The same boom that created new private sector opportunities for antitrust lawyers seems to have elevated the visibility and attractiveness of government antitrust. That has made recruiting a fun job. In recent days, Rich Parker left O'Melveny & Myers to join us as Senior Litigation Counsel and heir apparent to George Cary. John Horsley brought his intellectual property and antitrust skills from the Silicon Valley office of Pillsbury, Madison & Sutro to the Mergers II division. Shortly, Randy Tritell will leave the Brussels Office of Weil, Gotshal & Manges and return to the FTC to head up the International Division of the Bureau. Less visible, but equally important, are the talented staff attorneys who have joined us in recent months from such well known places as Crowell & Moring; Kaye, Scholer; Vinson & Elkins; O'Melveny & Myers; Steptoe & Johnson: Rogers & Wells and the National Institutes of Health. We have also expanded dramatically our Honors Paralegal program to provide us with additional staff to process second request and other large document productions.
Our in-house talent has moved up to staff key positions as well. Will Tom is now officially a Deputy Director, replacing Mark Whitener. Claudia Higgins is the new Assistant Director for Operations. Joe Krauss heads up the Premerger Office. And David Balto takes over for Will Tom as head of the Policy and Evaluation Office. Pending OPM approval and the conclusion of his commitment to the drug wholesalers cases, I intend to ask Mike Antalics to replace Howard Morse as the Assistant Director for the Mergers II division.
All in all, I've found this an exciting and satisfying year for Commission antitrust enforcement. I am grateful to all of our hard-working staff. I only wish it was growing on the same trend line as our commitments.
* The views expressed are those of the Bureau Director and do not necessarily reflect the views of the Federal Trade Commission or any Commissioner.
1. A comprehensive review of the Bureau's enforcement activities is available as a handout in the back of the room.
2. Toys "R" Us., Inc., Dkt No. 9278 (Decision and Order of the administrative law judge Sept. 25, 1996). (Copies of Commission documents referenced in my speech can be downloaded from the Commission's website at www.ftc.gov).
3. Summit Technology, Inc., Dkt. No. 9286 (complaint issued March 24, 1998).
4. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965); American Cyanamid Co., 72 F.T.C. 623 (1967), aff'd sub nom. Charles Pfizer & Co. v. FTC, 401 F.2d 574 (6th Cir. 1968), cert. denied, 394 U.S. 920 (1969).
5. Comments of Prof. William F. Baxter at the Author's Symposium on Competition Policy, Intellectual Property Rights and International Economic Integration, Aylmer, Quebec (May 13, 1996); Asst. Attorney General Joel I. Klein, Cross-Licensing and Antitrust Law, Address Before the American Intellectual Property Law Association (May 2, 1997).
6. Great Lakes Chemical Corporation, FTC File No. 9710004 (consent order accepted for comment March 27, 1998).
7. Stone Container Corporation, FTC File No. 9510006 (consent order accepted for comment, Feb. 25, 1998).
8. Sensormatic Electronics Corporation, FTC File No. 9510083 (consent order accepted for comment, Jan. 21, 1998).
9. An earlier Commission enforcement action also arose from an attempted settlement of litigation or threatened litigation. See YKK, USA, Dkt. C-3445, 116 F.T.C. 628 (1993) (consent order with manufacturer of zippers and related products based on allegation that attorney for YKK charged Talon, Inc. with "unfair and predatory sales" tactics by offering free installation equipment to buyers of zipper parts, and asked that Talon cease doing so; at subsequent meeting, YKK attorney allegedly proposed that both firms refrain from offering free equipment to customers).
10. FTC v. Indiana Federation of Dentists, 476 U.S. 447, 459 (1986).
11. Department of Justice and Federal Trade Commission Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust (1996), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,153, at 20, 799.
12. Mesa County Physicians Independent Practice Association, Dkt. No. 9284 (consent order accepted for comment, Feb. 19, 1998).
13. Parkside Kidney Stone Centers, FTC File No. 9310028 (consent order accepted for comment, Jan. 6, 1998).
14. FTC and Commonwealth of Puerto Rico v. College of Physicians and Surgeons, et al, Civ. No. 972466 (HL) (D.P.R. Oct. 2, 1997).
15. California Dental Association, Dkt. 9259 (final order, Mar. 25, 1996).
16. California Dental Ass'n v. FTC, 128 F.3d 720 (9th Cir. Oct. 22, 1997).
17. Id. at 727.
19. Id. at 727. The court cited FTC v. Indiana Federation of Dentists, 476 U.S. 447, 458-59 (1986) for the first proposition, and National Soc'y of Professional Engineers v. United States, 435 U.S. 679, 692-96 (1978) for the second.
20. Dell Computer Corporation, Dkt. No. C-3658 (final consent order, 1996).
21. See, e.g., Stone Container, supra, and American Cyanamid Company, Dkt. No. C-3739 (final consent order, May 12, 1997).
22. American Cyanamid Company, supra.
23. Roche Holding Ltd., 113 F.T.C. 1086 (consent order final, 1990).
24. FTC v. Loewen Group, Inc., Civil Action No. 98-0815 (D.D.C., filed March 31, 1998).
25. United States v. Titan Wheel International, Inc., Civil Action No. 96-1040, May 10, 1996 (D.D.C.) (Defendant agreed to $130,000 civil penalty, maximum allowable under law).
26. Insilco Corporation, Dkt. No. C-3783 (consent order made final Jan. 30, 1998).
27. FTC v. Schnuck's Markets, Inc., Civ. No. 01830 (E.D. Mo., filed Sept. 5, 1997).
28. FTC vs. CVS Corporation, Civil Action No. 98-0775 (D.D.C., filed March 26, 1998). CVS also paid a fine of $1.58 million to the Virginia Board of Pharmacy for violating its regulations about the proper transfer of prescription records.
29. Rite Aid Corporation, Dkt. C-3546 (1994).
30. FTC v. Rite Aid Corporation, Civil Action No. 98-0484 (D.D.C.) ($900,000 civil penalty order entered Feb. 27, 1998).
31. FTC v. Staples, Inc., 977 F. Supp. 1066 (D.D.C. 1997).
32. Brown Shoe Co. v. United States, 370 U.S. 294 (1962).
33. Bureau Director William J. Baer, "New Myths and Old Realities: Perspectives on Recent Developments in Antitrust Enforcement," Address Before the Bar Association of the City of New York (Nov. 17, 1997).
34. United States v. Baker Hughes, Inc., 908 F.2d 981 (D.C. Cir. 1990).
35. U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (1992) § 3.0, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104.
36. MEDIQ Incorporated, FTC File No. 9710066 (preliminary injunction action authorized, July 29, 1997); FTC v. MEDIQ Incorporated, Civil Action No. 97-1916 (SS), filed Aug. 22, 1997 (D.D.C.).
37. FTC v. Cardinal Health and FTC v. McKesson Corporation, consolidated as Civil Action No. 98-0595 (SS), filed March 9, 1998 (D.D.C.).
38. PacifiCorp, FTC File No. 9710091 (consent order accepted for comment Feb. 18, 1998).
39. Ass't. Attorney General for Antitrust Joel I. Klein, "Making the Transition from Regulation to Competition: Thinking About Merger Policy During the Process of Electric Power Restructuring," Address Before the Federal Energy Regulatory Commission Distinguished Speaker Series (January 21, 1998).
40. Shell Oil Company, FTC File No. 9710026 (consent order accepted for comment Dec. 19, 1997).
41. Roche Holding Ltd., FTC File No. 9710103 (consent order accepted for comment Feb. 25, 1998).
42. Federal-Mogul, FTC File No. 9810011 (consent order accepted for comment March 6, 1998).
43. S.C. Johnson, FTC File No. 9810086 (consent order accepted for comment Jan. 23, 1998).
44. Guinness PLC, FTC File No. 9710081 (consent order accepted for comment Dec. 15, 1997).