The American Bar Association Annual Meeting
* The views expressed are those of Chairman Pitofsky, and do not necessarily reflect those of the Commission or other Commissioners.
I am delighted to have an opportunity to discuss international merger enforcement - across continents and across jurisdictions - since it raises some of the most important and challenging questions in the entire competition arena.
As I look into my competition policy crystal ball, what I see is continued growth in the adoption of competition laws worldwide, more transactions and arrangements with competitive effects in more than one jurisdiction, and increased efforts by competition enforcers to address the overlaps that inevitably accompany these trends. I am, of course, heartened to see the increasing recognition worldwide of the integral role that competition laws play both in maximizing domestic welfare and in facilitating international trade. I view it as our challenge, as antitrust enforcers, to help see that our various national and regional antitrust regimes can work together to promote our shared goals, to minimize conflicts among us, and to make the process work as efficiently as possible.
We clearly have a compelling interest in this at the FTC where half of our mergers now involve a foreign party, information located outside the U.S., or a foreign asset that is critical to the remedy. I will devote the remainder of my brief remarks to discussing the encouraging recent developments I have witnessed in international antitrust cooperation.
Cooperation and Coordination Among Competition Enforcers
A. Cooperation in Case Enforcement
When I look back on the days of the uranium cartel cases and the resulting blocking statutes and bad will generated among some of our major trading partners, I am encouraged by how far we have come in developing frameworks to facilitate cooperative relationships among antitrust enforcers around the world. These arrangements -- our 1991 cooperation agreement with the European Commission(1) is a shining example -- have not only helped to avoid conflicts that can impede our mission of eliminating anticompetitive practices, but have yielded tangible benefits in our ability to investigate anticompetitive conduct and fashion effective remedies. Let me provide a few recent examples of how this has worked in practice.
It is probably fair to say that not a day goes by during which our lawyers at the Federal Trade Commission and the Department of Justice Antitrust Division are not in contact with their counterparts at some antitrust enforcement body somewhere in the world. These contacts often involve notifications, under bilateral agreements or the 1995 OECD Recommendation,(2) that alert another country’s antitrust agency about mergers or other investigations that are likely to affect their important interests. We often hold substantive discussions with our counterparts, which have enriched our understanding of issues such as relevant market definition, competitive effects, remedies, and timing of review.
The Ciba-Geigy/Sandoz merger, which the FTC, the European Commission, and Canada reviewed last year,(3) provides a good example of the tangible benefits cooperation can yield. The competition analysis in both jurisdictions examined, among other aspects, the competitive effects on methoprene, the key active ingredient in animal flea control products, of which Sandoz was the only successful producer. The European Commission’s concern over the parties’ dominant position in the methoprene market was satisfied by their undertaking to grant non - exclusive licenses for its production. The FTC’s concern over the effect of the merger in the North American market for flea control products was satisfied by a divestiture of Sandoz’s U.S. and Canadian flea control business, accompanied by a technology transfer agreement enabling the purchaser to produce its own methoprene and a temporary supply agreement to provide methoprene to the purchaser until it achieves the necessary government approvals to begin its own production. The competitive concerns were different in Europe and North America, but could be satisfied only through access to the same ingredient. Through active coordination, the FTC and the Commission were able to work out complementary remedies satisfactory to both agencies. We also cleared the proposed buyer with the Canadian Competition Authority. (There was another important aspect of this proposed merger that I will address shortly.)
We also coordinated closely with the EC and Canada in our review of the recent Guinness/GrandMetropolitan merger, reaching similar determinations as to how to restore competition to the markets adversely affected by the transaction.(4) After concluding that a divestiture of Dewar’s brand Scotch would effectively remedy the competition issues in Europe and in the U.S., both agencies successfully negotiated such a settlement with the parties, and we are now in the process of coordinating our respective divestiture processes.(5)
Cooperation also played a key role in resolving issues raised by the recent Federal Mogul/T&N merger.(6) Both parties are leading producers of a wide range of automotive parts in Europe and the United States. The merged firm would have accounted for 80% of sales of thin wall bearings used in car, truck, and heavy equipment engines. The transaction fell below the EC’s jurisdictional thresholds, but was reviewed by the U.K., French, German, and Italian competition authorities. Extensive consultation among staff of all involved agencies led to mutual conclusions that there were competition problems in the thin wall bearing market, and that T&N’s research facilities in Great Britain were critical to the ability of a purchaser of divested assets to compete effectively. The parties responded with a proposal to all of the involved authorities to divest a package of assets from both Federal-Mogul and T&N in Europe and the U.S., including some assets from the T&N research facility, and even presented an "up front" buyer. While substantial, this offer was ultimately found wanting, and we ultimately obtained the divestiture of T&N’s thin wall bearings business. The achievement of this remedy was closely coordinated with the European authorities, particularly the German Federal Cartel Office whose desired relief we were able to incorporate into our consent order.(7) We look forward to more of such cooperation in the future with national competition authorities.
Cooperation can mean not only joint action but, in appropriate circumstances, deference to another competition agency to avoid overlapping proceedings. This kind of comity allows the best placed agency to conduct the investigation, and avoids issues arising from extraterritorial application of antitrust laws. It also eliminates duplication of effort by the agencies and the parties. A good example of this occurred in 1996 when, based on the OECD Recommendation and our relationship with the Italian Competition Authority, we deferred to the Italian investigation of a production quota maintained by the Parma Ham producers’ consortium. Through our notification of our investigation to the Italian authority we learned that they were already investigating this issue. Ultimately, their decision(8) and remedy satisfied the FTC’s concerns, and we closed our investigation.
These cases demonstrate some of the benefits of cooperation, as well as the practical need for coordination when more than one reviewing agency is seeking relief. The parties typically welcome this kind of cooperation, as uncoordinated investigations could potentially lead to conflicting demands by different authorities to remedy perceived competitive issues.
Of course, these examples are not intended to suggest that cooperation agreements are a panacea -- clearly they are not. One limitation on the effectiveness of cooperation is national confidentiality laws that limit the ability of enforcement agencies to share information obtained in the course of investigations. Similarly, we may not use compulsory process to obtain information in the U.S. for an antitrust authority abroad, and other countries are bound by similar restrictions on assisting us. We hope to overcome some of those limitations in the future through agreements under laws like our International Antitrust Enforcement Assistance Act, or IAEAA.(9)
Nor should we expect too much from the cooperation process. Competition laws still reflect conceptual and substantive differences among different countries and systems. On some occasions, our staff and that of another competition authority may reach different conclusions as to whether there has been a law violation. The Boeing/McDonnell Douglas(10) experience jumps to mind, but there have been other instances in which we and other jurisdictions ultimately decided to proceed in a different manner, without sparking a confrontation. For example, just a few months before the Boeing case, the EC and the FTC came to different conclusions as to the effect of the Ciba-Geigy/Sandoz merger on the market for gene therapies. This was a significant case involving medical treatments of enormous potential, that was nonetheless coordinated amicably despite the differing enforcement perspectives. Outcomes can also diverge because of differing market structures. For example, when Roche recently proposed an acquisition of Boehringer-Mannheim,(11) the FTC was concerned about the effects of the transaction on the U.S. market for drug abuse testing equipment, but this was not an important issue in Europe because European countries typically do not permit the kind of mass screening of drug use for which the parties’ products are used.
So I would view the Boeing experience as atypical, involving the application of somewhat divergent legal standards to a particular product, rather than as a harbinger of future confrontations. It illustrates one of the limits on cooperation, but should not be misread as presaging its demise. As I can tell you from my experience at an agency with a multi-member decision-making body, it is often difficult to achieve consensus even within a single legal system, so we should not expect different institutions applying different bodies of law, perhaps even examining different facts, to always arrive at the same conclusions.
B. New Cooperation Initiatives.
The cooperative efforts I have described are evidence of the vitality of agreements we have concluded with other nations, and the relationships that have been established through those agreements. More needs to be done however if truly effective and efficient enforcement goals are to be achieved.
One important arena of activity, to be discussed today, has to do with arrangements that allow firms contemplating mergers (1) to file similar pre-merger notification forms with reviewing enforcement authorities in different countries, and (2) enjoy the benefit of reaching the conclusion of review in different countries at approximately the same time. Some consideration of more uniform filing requirements is currently being devoted to the issue in the OECD and I expect that kind of exploration will continue.
One challenge in developing uniform premerger notifications is the very different level of merger activity, and the different nature of review, in different countries around the world. As many of you know, the United States set an all-time record last year when roughly 3,700 proposed mergers (acquired asset over 15 million dollars) were filed with the Department of Justice and the Federal Trade Commission. Many of us thought that the merger wave could become no greater than in 1997. To my surprise, merger filings with the two United States agencies have increased by approximately 35% in the present fiscal year.
One result is that, in the United States, the initial filing form must be relatively brief. If we were to be required to review extensive information about mergers for upwards of 4,000 transactions, our staffs would be overwhelmed. Other jurisdictions have filing requirements in which premerger notifications are far fewer - perhaps 150 or 200 a year - and the agencies must issue a formal decision on each notified transaction. In those jurisdictions it makes sense to ask for more information on a first filing. Imaginative thinking to work out problems like these and still come up with a uniform premerger filing notice will be required.
I would like to say a few words about the positive comity agreement, signed in early June in Washington, D. C. by Attorney General Janet Reno, Karel van Miert and myself. While it does not address mergers directly, it indicates an attitude toward international cooperation that I think is important.
A principle of positive comity was originally incorporated into the 1991 E.C. - U.S. Cooperation Agreement. Parties committed to routinely cooperate in handling numerous cases effecting each other’s interests. Most of this cooperation has taken place on an informal basis.
The new agreement has two purposes: (1) to help ensure that anticompetitive activities do not impede trade and investment flow between the parties or competition and consumer welfare within their territories; and (2) to establish cooperative procedures to achieve the most effective and efficient enforcement against anticompetitive activities that occur principally in one parties’ territory. The agreement provides, among other things, that a party may exercise its discretion and stay its hand with respect to certain anticompetitive practices in the territory of another party, and rather request the other party to investigate (and report back within a reasonable time period) pursuant to positive comity. This reflects the cooperation and trust that the parties have accumulated over years of working more closely together. I look forward to further strengthening our bonds under this new agreement.
The new agreement will not cover mergers, largely because U.S. and E.C. merger laws and prenotification rules leave little discretion to exercise the kind of deference that "positive comity" implies. It does indicate however a willingness to cooperate in international antitrust enforcement. As I have said on several occasions, global competition is bound to increase in future years and the number of transactions having an impact in more than one jurisdiction will increase commensurately. Cooperation in various forms is essential, for investigations and in fashioning remedies, if a sensible enforcement program is to be achieved.
(1) Agreement between the Commission of the European Communities and the Government of the United States of America regarding the application of their competition laws, Sept. 23, 1991, reprinted in 4 Trade Reg. Rpt. (CCH) ¶ 13,504, and OJ L 95/45 (27 Apr. 1995),corrected at OJ L 131/38 (15 June 1995).
(2) The 1995 Recommendation of the OECD Council Concerning Co-operation between Member Countries on Restrictive Business Practices Affecting International Trade, OECD Doc. C(95)130/FINAL, 27-28 July 1995.
(3) Ciba-Geigy/Sandoz, Case No IV/M.737, European Commission Decision of 17 July 1996, OJ L 201 (29 July 1997); Ciba-Geigy, Ltd.,et al., FTC Dkt. No. C-3725, Consent Order and Complaint (March 24, 1997), reported in 5 Trade Reg. Rpt. (CCH) ¶ 24,182.
(4) Guinness/GrandMetropolitan, Case No IV/M.938, European Commission Decision of 15 October 1997 [not yet reported in Official Journal]; Guinness PLC, et al., FTC Dkt. No. C-3801, Consent Order and Complaint, Apr. 17, 1998, reported in 5 Trade Reg. Rpt. (CCH) ¶ 24,359.
(5) The FTC consent order also required divestiture in the premium gin market; the gin market was not at issue, however, in the EC proceeding.
(6) Federal Mogul Corporation and T&N PLC, FTC File No. 981-0011, Proposed Consent Order and Complaint, March 5, 1998, reported in 5 Trade Reg. Rpt. (CCH) ¶ 24,400.
(7) [insert cites from German and FTC decisions]
(8) [insert cites from German and FTC decisions]
(9) Consorzio del Prosciutto di San Daniele - Consorzio del Prosciutto di Parma (Rif. I138) Delibera del 19.06.96 - Boll. N. 25/1996 (available on the home page of the Italian Competition Authority.)
(10) P. L. 103-438; 108 Stat. 4597; 15 U.S.C. §§ 6201-6212.
(11) The Boeing Co., et al., Joint Statement closing investigation of the proposed merger and separate statement of Commission Mary L. Azcuenaga, FTC File No. 971-0051, announced July 1, 1997, reported in 5 Trade Reg. Rpt. (CCH) ¶ 24,295; Boeing/McDonnell Douglas, Case No IV/M.877, European Commission Decision of 30 July 1997, OJ L 336/16 (8 Dec. 1997).
(12) Hoffmann-La Roche/Boehringer-Mannheim, Case No IV/M.1088, European Commission decision of 4 February 1998 (Art. 6.1(b) decision not published in Official Journal); Roche Holding, Ltd., FTC File No. 971-0103, Proposed Consent Order and Complaint, Feb. 11, 1998, reported in 5 Trade Reg. Rpt. (CCH) ¶ 24,393.