[Senate Hearing 107-942]
[From the U.S. Government Publishing Office]
S. Hrg. 107-942
OVERSIGHT OF ENFORCEMENT OF THE ANTITRUST LAWS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
BUSINESS RIGHTS, AND COMPETITION
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 19, 2002
__________
Serial No. J-107-103
__________
Printed for the use of the Committee on the Judiciary
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WASHINGTON : 2003
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware STROM THURMOND, South Carolina
HERBERT KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin JON KYL, Arizona
CHARLES E. SCHUMER, New York MIKE DeWINE, Ohio
RICHARD J. DURBIN, Illinois JEFF SESSIONS, Alabama
MARIA CANTWELL, Washington SAM BROWNBACK, Kansas
JOHN EDWARDS, North Carolina MITCH McCONNELL, Kentucky
Bruce A. Cohen, Majority Chief Counsel and Staff Director
Sharon Prost, Minority Chief Counsel
Makan Delrahim, Minority Staff Director
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Subcommittee on Antitrust, Business Rights, and Competition
HERBERT KOHL, Wisconsin, Chairman
PATRICK J. LEAHY, Vermont MIKE DeWINE, Ohio
RUSSELL D. FEINGOLD, Wisconsin ORRIN G. HATCH, Utah
CHARLES E. SCHUMER, New York ARLEN SPECTER, Pennsylvania
MARIA CANTWELL, Washington STROM THURMOND, South Carolina
JOHN EDWARDS, North Carolina SAM BROWNBACK, Kansas
Victoria Bassetti, Majority Chief Counsel
Peter Levitas, Minority Chief Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio......... 3
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah,
prepared statement............................................. 144
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin... 1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
prepared statement............................................. 171
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 11
WITNESSES
James, Charles A., Assistant Attorney General, Antitrust
Division, Department of Justice, Washington, D.C............... 4
Muris, Hon. Timothy, Chairman, Federal Trade Commission,
Washington, D.C................................................ 6
QUESTIONS AND ANSWERS
Responses of Timothy Muris to questions submitted by Senator
DeWine......................................................... 29
Responses of Timothy Muris to questions submitted by Senator Kohl 46
Responses of Charles James to questions submitted by Senators
Kohl, DeWine, Feinstein, and Cantwell.......................... 52
SUBMISSIONS FOR THE RECORD
Air Carrier Association of America, Edward P. Faberman, Executive
Director, Washington, D.C., statement.......................... 80
American Antitrust Institute, Albert A. Foer, Predident,
Washington, D.C., statement.................................... 93
American Bar Association, Roxane C. Busey, Chair, Section of
Antitrust Law, Washington, D.C., statement..................... 109
Broadband Service Providers Association, comments................ 120
Federal Trade Commission, Washington, D.C., statement............ 124
James, Hon. Charles A., Assistant Attorney General, Antitrust
Division, Department of Justice, Washington, D.C., prepared
statement...................................................... 147
Renewable Fuels Association, Bob Dinneen, President, Washington,
D.C., letter and attachment.................................... 173
OVERSIGHT OF ENFORCEMENT OF THE ANTITRUST LAWS
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THURSDAY, SEPTEMBER 19, 2002
U.S. Senate,
Subcommittee on Antitrust, Competition,
Business and Consumer Rights,
Committee on the Judiciary,
Washington, D.C.
The Subcommittee met, pursuant to notice, at 1:30 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl,
Chairman of the Subcommittee, presiding.
Present: Senators Kohl, DeWine, and Specter.
OPENING STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE
STATE OF WISCONSIN
Chairman Kohl. We meet today to hear from the heads of two
agencies charged with the important responsibility of enforcing
our Nation's antitrust laws--the Justice Department's Antitrust
Division and the Federal Trade Commission.
Much has happened to the Nation's economy since our
Subcommittee last met for an oversight hearing more than 2
years ago. We have seen sharp declines in the stock market,
scandals affecting the leaders in the board rooms at some of
our largest and our most prestigious corporations, and
continued consolidation in many key sectors of the economy,
including media, telecommunications, pharmaceuticals, aviation,
oil and gas, and computer manufacturing.
These challenging economic times make vigorous enforcement
of our antitrust laws all the more essential. In recent years,
we have witnessed an incredible wave of mergers and
acquisitions, touching virtually every sector of the economy.
In the decade from 1991 to 2001, the value of mergers and
acquisitions reviewed by the antitrust agencies increased more
than 6 times, from $169 billion to more than $1 trillion. And
application of antitrust laws is not limited to corporate
mergers. In industries as varied as computer software,
aviation, and health care, the antitrust agencies have had to
be a vigilant watchdog to ensure that the antitrust laws are
properly enforced to prevent companies from stifling
competition and harming consumers.
Given the merger wave of the last decade and the corporate
scandals of the last year, this is not the time to be lax about
enforcing antitrust laws. We will be watching closely to see
how your two agencies respond to these challenges in the years
ahead, Mr. James and Chairman Muris.
We are especially pleased, Chairman Muris, with the
emphasis that you are placing in antitrust enforcement in the
health care sector. However, we have heard a growing sense of
unease about the direction of the Antitrust Division in the
last year, Mr. James.
The sense of skepticism about the Division's activity is
founded on several things, from a decline in actions taken by
the Division, to the high-profile Microsoft settlement, to the
consolidation trend in media, cable, telecom, and airlines, to
name a few industries, that seems to be meeting little, if any,
resistance from the Antitrust Division.
Observers have noted a sharp decline in the Division's
enforcement activity. While we recognize that the number of
mergers and acquisitions reported to the Antitrust Division has
also diminished in the last couple of years, this decline
includes a significant drop in the Division's activities in
civil, non-merger, and criminal enforcement.
The Microsoft settlement is also dismaying. The settlement
contains so many loopholes, qualifications and exceptions that
many worry that Microsoft will easily be able to evade its
provisions, and it leaves many in doubt that competition will
truly be restored to the computer software market. By this
action, has the Antitrust Division squandered its golden
opportunity to ensure a competitive software industry, a result
for which consumers will be paying a high price for years to
come?
The reorganization of the Antitrust Division and
streamlining of the merger review process have also raised
concerns. Does the elimination of the Civil Task Force signal a
diminishment of the importance of non-merger civil enforcement?
Will the elimination of the Health Care Task Force result in a
loss of expertise to pursue health care matters? In general,
does the decline in Antitrust Division activity and the
internal reorganization mean an end to the era of strong
antitrust enforcement of the last decade? Of course, we hope
not.
My own view is that vigorous and aggressive enforcement of
our Nation's antitrust laws is essential to ensuring that
consumers pay the lowest possible prices and gain the highest-
quality goods and services. In this era of ever-quicker
technological change and ever-increasing corporate
consolidation, the need for vigorous enforcement of our
antitrust laws has never been greater. We are committed to
ensuring that your agencies have the necessary resources to do
a good job.
The weeks and months ahead will be a crucial time for the
antitrust agencies, with decisions expected in major mergers
such as Echostar/DirecTV and Comcast/AT&T at the Antitrust
Division, and with the FTC engaged in several important health
care projects, including its work undertaken at our request to
investigate allegations of anti-competitive practices in the
hospital group purchasing industry.
We will be monitoring your agencies carefully, Mr. James
and Chairman Muris, as you carry out your vital
responsibilities on behalf of American consumers.
Let me turn now to my Ranking Member and good friend, Mr.
DeWine.
STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE STATE OF
OHIO
Senator DeWine. Mr. Chairman, thank you very much. I want
to thank you for holding this very important hearing and thank
you for the leadership that you have provided as chairman of
this Antitrust Subcommittee. I want to commend you again for
the bipartisan way in which this Subcommittee has operated.
Over the years, we have agreed on many issues and I suppose
we have disagreed on some, but this Subcommittee has been
productive. It has been productive because we have always been
able to work very closely together. So I look forward to
continuing that work.
Before I get to the rest of my statement, I would like to
thank the chairman and our witnesses for their flexibility in
scheduling today's hearing and moving the time up. I am going
to leave shortly to attend an Intelligence Committee hearing
that is looking into the aftermath of September 11 and trying
to determine where this country needs to go in the future in
regard to our intelligence system. But I did want to be here to
give a brief statement because vigorous antitrust enforcement
is a critical part of our economic system, and oversight is a
key responsibility of this Subcommittee.
We are pleased to welcome Assistant Attorney General James
and Chairman Muris, of the Federal Trade Commission, to the
hearing today. I appreciate the leadership that you both have
provided to your respective agencies and I look forward to
continuing our work together, as we have worked with the
Antitrust Division and the FTC in the past.
This oversight hearing is taking place in a different
economic environment than we had at our last oversight hearing.
In fact, ever since Senator Kohl and I began serving on the
Antitrust Subcommittee back in 1997, the economy had been in
the midst of a tremendous wave of mergers and consolidations.
However, today, that wave has at least to some extent abated.
Nonetheless, as Senator Kohl has stated, vigorous antitrust
enforcement remains vitally important to creating and
maintaining a competitive environment that will benefit our
economy. In fact, in these times of corporate scandal and
economic uncertainty, it is even more important that companies
compete vigorously, effectively, and fairly.
The Antitrust Division and the FTC are, of course,
essential to making sure that happens, and I join Senator Kohl
in urging both agencies to continue actively enforcing our
antitrust laws--something that I know both of you agree is very
important.
I would like to briefly address two issues that I feel are
particularly important. The first is the ongoing consolidation
that we continue to see in the entertainment, news, and media
industries. I have in the past expressed concern about
concentration in these industries, and I remain today
concerned.
This concentration raises particularly important public
policy questions that frankly go well beyond the traditional
antitrust analysis. The consolidation in the entertainment,
news, and media industries has left more and more voices under
the control of fewer and fewer media owners. This leaves
citizens with fewer sources of the information and news that
are necessary in a vibrant and open marketplace of ideas.
Senator Kohl and I are planning to hold a hearing to examine
this issue, probably early next year, and I look forward to
working on this important issue in our Subcommittee.
My second area of concern is in the area of civil, non-
merger enforcement. I think that as we have seen a decline in
the number of mergers, we are seeing an increasing number of
firms turning to joint ventures or other joint conduct instead.
While such arrangements differ from full-fledged mergers, they
often have significant competitive impact and require similar
vigorous scrutiny from the antitrust agencies.
Since these arrangements do not fall under the auspices of
the Hart-Scott-Rodino Act, the agencies are not required to
examine them under the statutory merger time lines. But despite
the lack of statutory time lines, it is important that the
agencies review these arrangements within reasonable time
periods, without, of course, sacrificing careful, thorough,
economically sound analysis.
Mr. Chairman, I look forward to working with you and the
rest of this Subcommittee and our witnesses to ensure that such
enforcement will continue.
Thank you very much.
Chairman Kohl. Thank you very much, Senator DeWine, and we
appreciate your making time in your schedule to be with us
today.
Our first witness this afternoon is the Honorable Charles
James, Assistant Attorney General for the Antitrust Division of
the Department of Justice. Mr. James was confirmed by the
Senate in June of 2001. Prior to arriving at the Antitrust
Division, Mr. James practiced law at Jones, Day, Reavis and
Pogue's Washington, D.C., office, where he chaired the firm's
antitrust and trade regulation practice. Mr. James previously
spent 3 years in senior positions at the Antitrust Division
during the first Bush administration, including serving for
several months as Acting Assistant Attorney General for
Antitrust.
Next, we will hear from the Honorable Timothy Muris,
Chairman of the Federal Trade Commission. Mr. Muris was sworn
into this position in June of 2001. Early in his legal career,
Mr. Muris served the Commission as Assistant Director of the
Planning Office, Director of the Bureau of Consumer Protection,
and Director of the Bureau of Competition. Before becoming
Chairman, he taught at George Mason University Law School and
served as interim dean of the law school.
We thank you gentlemen for being here today, and first we
will hear your testimony, Mr. James.
STATEMENT OF CHARLES A. JAMES, ASSISTANT ATTORNEY GENERAL,
ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON, D.C.
Mr. James. Thank you, Chairman Kohl. It is good to be here
this afternoon--Senator DeWine as well. I am gratified to have
the opportunity to talk about what we have been doing over the
last 15 months at the Antitrust Division on behalf of
competition and consumers.
I certainly want to begin by noting my appreciation for the
interest in and support of the work of the Antitrust Division
from this Subcommittee, and I certainly want to echo your
sentiments that we all understand the importance of vigorous
and sound antitrust enforcement.
I tried to be as exhaustive as possible in my written
remarks and in our responses to your questions. I would just
like to highlight a couple of issues.
In terms of our criminal program, I think you will find
that it is, in fact, intact. During the course of the last
fiscal year, we have filed 27 cases and we are well on our way
to filing 40 or more cases, having approved an addition 5 that
are still in process but have not yet been filed.
We have received $125 million in criminal fines this year,
or had those imposed by the courts. We had a record year in
criminal restitution--$30 million. We have continued the upward
trend in jail sentences in criminal cases. Two of our sentences
during the last year were record sentences, one for 10 years,
and one for 5 years, for antitrust and related offenses.
Most importantly, the Division currently has 99 pending
grand jury investigations in the criminal area, which is a very
substantial number. And I would note that a substantial amount
of our work over the years has involved these international
cartel cases, and 40 of our current grand jury investigations
presently involve international cartel-type issues.
Moving on to merger enforcement, as both of you have noted,
the number of filings that we have received is down. During the
15 months that I have been at the Antitrust Division, we
received 1,500 pre-merger transactions notified to us. That
compares to nearly 5,000 in the year 2000 and over 4,600 in the
year 1999.
Nevertheless, the Antitrust Division has been active. We
have challenged 21 mergers, 20 of them successfully. We have
also had three important compliance cases, two involving
compliance with Section 7A of the Hart-Scott-Rodino Pre-Merger
Notification Act, and one involving compliance with a DOJ
consent decree.
Both of you have highlighted civil non-merger enforcement.
I think it is important to note that when we began, there had
been a very active civil, non-merger program that was consuming
a great deal of resources. We have continued the expenditure of
resources on those cases and litigation, but the basic pipeline
was empty. During my tenure here we gave brought two
significant civil, non-merger cases.
But most importantly, we have commenced, apropos to Senator
DeWine's comments, a very, very close analysis of joint venture
activity. We have made joint venture activity an important
component of our activity. The fact of the matter is that our
reorganization was designed to put more resources into civil
non-merger enforcement rather than less, because we now have
all of our sections focusing on civil non-merger enforcement
rather than just one.
As a matter of fact, I think the data that we have provided
to the Committee indicates that we have opened up civil non-
merger investigations at a faster rate than at any time over
the last three to 4 years, and so that program is well
underway.
Now, the timeframes required to conduct these civil non-
merger investigations is extensive. I think if you look back at
the data that we have provided to the Committee, the average
time frame for conducting investigations, during the last 4
years was between 1.9 and 2.4 years. That is too much time for
consumers and the marketplace, but these matters do require
careful investigation, and we are doing everything we can to
expedite these investigations as appropriate.
We are very, very pleased with the strides we have made in
the international area, which I know is an area that both of
you have focused on. As you know, we began our tenure here with
the divergence with the EU on the GE/Honeywell transaction, but
we have used that divergence as a basis for stimulating a more
concrete and substantive dialog with the EU, working to develop
concrete proposals for achieving convergence on merger process
and substance. And we see positive movement from the EC on many
fronts, bringing our enforcement regimes into closer alignment.
Beyond the U.S.-EU relationship, the ICN initiative,
International Competition Network, for which we are one of the
driving forces together with Chairman Muris and the FTC, will
have the leaders of 65 jurisdictions sitting together next week
to discuss concrete proposals for convergence on pre-merger
notification, merger standards, investigative process, and
competition advocacy.
In effect, what we are aimed at doing at both agencies is
turning talk into action. We think we have made very, very
solid progress on positioning the Antitrust Division to become
a more effective enforcer. We have had a reorganization and
modernization. We have the merger review process initiative and
very extensive best practices activity in the merger area both
inside the Department of Justice and with the FTC. We have had
our important policy initiatives in intellectual property
remedies, coordinated effects in merger analysis, and Hart-
Scott-Rodino compliance.
So I am particularly pleased to be here today with Chairman
Tim Muris, who has been a very, very supportive partner in
everything that we have done. I think the relationship between
the Federal Trade Commission and the Department of Justice is
better today than it has been in quite some time, and we are
indeed looking forward to the next year and working with this
Committee to make the Antitrust Division as effective as it
possibly can be.
Thank you.
[The prepared statement of Mr. James appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. James.
Chairman Muris?
STATEMENT OF HON. TIMOTHY MURIS, CHAIRMAN, FEDERAL TRADE
COMMISSION, WASHINGTON, D.C.
Mr. Muris. Thank you very much, Mr. Chairman and Senator
DeWine. It is a privilege to be here today before you and to be
here with my good friend, Charles James. Charles and I are
working, as he mentioned, on many collaborative activities and
I believe he is doing an outstanding job.
Let me just summarize the FTC's testimony. I am testifying
on behalf of the Commission and, of course, the answers to your
questions will be my views only and not those of the
Commission.
I think the FTC's record is impressive. We have a very
dedicated professional staff, and I believe we have been
continuing the excellent work of my predecessor, Bob Pitofsky.
As you know, I am the only Bush appointee on the Commission
and, despite that, virtually every action that we take is
unanimous. There is a remarkable degree of unanimity among my
colleagues, and that is especially true on substantive
antitrust matters.
I want to highlight today our recent history of aggressive
enforcement, and I want to talk also about the special role of
the FTC as an expert agency to advance the state of knowledge
about various issues.
Let me begin briefly with merger enforcement. Despite the
decline in the merger wave, there are still many complex
mergers. In many ways, the size, scope, and complexity of
mergers have increased, and if you look at merger statistics
over time--I have been involved with these issues since 1974
when I first worked at the FTC--merger activity remains high,
complex, and difficult in a historical sense. It is just not
nearly as high as it was during the unprecedented merger wave
of a few years ago.
We also have been devoting attention to non-reportable
mergers. With the increase in merger notification thresholds, I
believe they require more attention. We have brought cases
against both non-reportable and also consummated mergers. We
also have been working closely with Charles and the Antitrust
Division to make the merger review process more efficient and
transparent.
Turning to non-merger enforcement, given the ebbing of the
unprecedented merger wave, we have been able to increase
resources devoted to non-merger enforcement. We opened more
than twice as many non-merger investigations last fiscal year
as the Commission did in fiscal year 2000, and we have been
able to maintain that pace of opening new investigations in the
fiscal year that is about to end.
We have given special attention to the health care
industry, and I greatly appreciate and agree completely with
your comments about the importance of that industry. We have
also given prominence to the energy industry. Let me just very
briefly mention what we are doing in those two industries.
In energy, although the pace of energy mergers has
declined, we still have had very significant consents, most
recently involving Phillips and Conoco. We also are studying
various issues in this industry, including the recent
volatility in refined petroleum product prices. We are going to
issue a report on that topic.
We also very recently, on a nationwide basis, in 360 retail
markets and a significant number of wholesale markets, began
tracking on a real-time basis those prices, looking for
anomalies. The program has just started so it is really too
early to report on it, but I have written letter to all 50
State attorneys general and gotten many letters back promising
cooperation and support. I think this is an important area.
In health care, we have a very significant program. We have
doubled our resources spent on health care in fiscal 2002
compared to fiscal 2001. Pharmaceuticals remains the most
important area for us, but we have gotten heavily involved in
other issues in health care. We have brought a significant
number of collusion cases recently. We are looking at
consummated hospital mergers. We held an excellent workshop
recently to discuss competition issues in health care,
including the GPO issue, which I appreciate your calling to our
attention.
Obviously, as I mentioned, pharmaceuticals is the most
important area in terms of resources, and an extremely
important area to consumers. We have brought new cases since I
have been at the Commission and we have certainly expanded our
efforts in the pharmaceutical area. We released an important
report on the so-called Hatch-Waxman law. I know the Senate has
passed an amendment to that law. I think our report is an
important addition to the understanding of how that very
complex subject works.
We also are very interested in high-tech and new economy
issues. With the Department of Justice, we have commenced a
series of hearings on competition in intellectual law and
property in the knowledge-based economy. The hearings will
conclude in October, and after that we anticipate issuing a
report.
Let me conclude briefly by just addressing the subject of
antitrust exemptions. I think, in general, they are a very bad
idea. There are some efforts to have new statutory exemptions
enacted. I believe that antitrust is extraordinarily important
in our economy and we should not shrink its domain.
I also believe that there are some judge-made exemptions
that need to be reviewed because some courts have interpreted
them in an overly expansive way. We are doing that with the
state action and Noerr-Pennington exemptions.
To conclude, I greatly appreciate, Mr. Chairman, the
opportunity to be here. I think we are doing aggressive and
important work. As I have said many times, I very much enjoy
being at the Commission: The mission is important, the issues
are extraordinary, and the people are great. So what is not to
love about the work that we are doing.
Thank you very much.
[The prepared statement of Mr. Muris appears as a
submission for the record.]
Chairman Kohl. Thank you, Chairman Muris.
My first question is for you, Chairman Muris. As you know,
over the last year our Subcommittee has investigated disturbing
allegations of anti-competitive practices among the large
buying organizations that purchase medical equipment and
devices for hospitals--what are known as group purchasing
organizations or GPOs.
We held a hearing in April and received evidence of GPO
practices that sometimes can indeed prevent innovative medical
devices from getting to the hospitals and patients who need
them--innovative products like safety needles or advanced
pacemakers.
This situation, of course, is very disturbing. It is not
acceptable to us to tolerate a situation in which patients and
physicians could be denied the best medical devices because of
anti-competitive practices by GPOs. We were pleased that last
month, in response to our concerns, two of the largest GPOs
committed to voluntarily change many of their contracting
practices and end their conflicts of interest.
However, we also believe that vigorous antitrust
enforcement is required of this industry, and that the joint
FTC-DOJ health care guidelines covering the activities of GPOs
need to be reviewed and update. We are very pleased that you
agreed to initiate an inquiry into the GPO industry at our
request several months ago.
Chairman Muris, do you share our concern regarding the
possibility of anti-competitive practices by GPOs, resulting in
competitive device manufacturers being denied access to the
hospital marketplace, and could you please describe your
agency's plans with respect to investigating this issue? Will
you commit to revising your health care guidelines on this
subject if anti-competitive practices are shown to exist?
Mr. Muris. As I mentioned, Mr. Chairman, I greatly
appreciate your bringing this issue to our attention. I think
it is an important one. As you know, we certainly are looking
broadly at the issue. We also obviously will look at the
healthcare guidelines to see whether they need to be changed.
We recently held a panel during which several experts
discussed the complexities of the issue. Participants included
representatives from the GAO, people in the industry, and
observers of the practice. I have read a great deal about it
myself.
I think we will looking at this issue fully, and I
obviously commit to doing so. I don't know where the Commission
is headed in its review. We will have to let the facts speak
for themselves, but I do know that it is an important issue and
we are looking at it closely.
Chairman Kohl. Mr. James, as these are joint Justice
Department-FTC guidelines, will you pledge to work with the FTC
on this issue?
Mr. James. Senator Kohl, when we received your letter
making an inquiry the matter was cleared to the FTC. We
indicated in our response to you that we would be happy to work
with the FTC and support them in this effort, as they deem
appropriate, so that as their analysis goes forward we have our
policy people keeping track of what is going on and consulting
with the FTC. We are certainly happy to work with the FTC to
improve the guidelines, if that is what the evidence and their
investigation and their general policy review indicates.
Chairman Kohl. Chairman Muris, millions of Americans are
disturbed nearly everyday in the privacy of their homes by
annoying telemarketing telephone calls. It is a problem that
has gotten out of control. The average American receives two to
three telemarketing calls everyday, and my experience is that I
often receive even more than that.
Some estimate that the telemarketing industry is able to
make 560 calls, computerized, per second, which is roughly 24
million calls a day. So it is no wonder that people feel like
they are oftentimes under siege in their own homes.
We understand that the FTC wants to establish a national
``do not call'' list which would stop some, but not all,
telemarketing calls. So let's talk about it a little bit.
What needs to be done to stop all of these calls? If this
is the No. 1 consumer protection issue in the country--and if
it is not, it is close--and if we need a uniform rule without
exceptions and loopholes, then would you say that Congress must
act in order to implement a stronger rule? What is it you are
doing, what is it that needs to be done? Is it a desirable goal
to enable every home in America, if it so wishes, to be able to
block telemarketing calls as completely as it so wishes, with
maybe just a few exceptions like charitable calls? What would
you tell us today on this huge issue about which virtually
every American home is listening to what you have to say?
Mr. Muris. It is a very important issue, Mr. Chairman. We
have never received so many unsolicited comments so quickly as
we have on the ``do not call'' issue. We are in the final
stages internally of making decisions on the parameters and the
various issues involved with the rule.
In terms of some of the specifics that you have referenced,
our rule, couple with now the Federal Communications Commission
proposal, would, we believe, address about 80 percent of the
phone calls. One of the biggest areas, quite frankly, that we
cannot legally address involves phone calls involving political
campaigns and political fundraising.
The charities are an issue, and I believe that both legally
and constitutionally charities should be subject to our rules,
but that they need to be treated differently. Most of the
States have some exemption for charities. That doesn't mean you
necessarily have a total exemption, but perhaps you can do it
on a charity-by-charity basis, leaving that up to the consumer.
As I said, we will move shortly, but what we do need from
Congress is the authority to spend the money. I know you are on
our appropriations Subcommittee, so this is highly relevant.
The law allows us to have our rulemaking, but we can't spend
the money we need without your authority. We can't afford to do
the ``do not call'' rule, to implement it, without authority of
Congress to spend the money.
I am concerned by some of the discussion of a possible very
long-term continuing resolution because if that happens and if
we don't receive authority to spend the money on that CR, then
the ``do not call'' list will be delayed.
Chairman Kohl. How much money are you talking about?
Mr. Muris. Well, it is not new money. We are raising the
money through fees. It will be somewhere in the neighborhood of
$10 to $12 million. It will be through fees, so it will be no
new money for Congress. But obviously an agency cannot spend
money without the authority of law. That is in the Constitution
as well as the law, and so it will require the Congress to give
us the authority to spend the money.
As Congress is wrapping up its appropriations bills, and as
it looks fairly clearly that there is going to be some sort of
continuing resolution, the longer the continuing resolution
leaves us without the authority to spend the money, then, of
course, the whole process could be delayed.
Chairman Kohl. All right, we will get back to you in just a
minute on this. Senator Specter has arrived. He cannot stay too
long and he would like to make a statement.
Senator Specter?
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. Well, thank you very much, Mr. Chairman. I
commend you for scheduling this hearing on this very, very
important subject and bringing two key antitrust enforcers into
the hearing room.
These are enormously important subjects, and regrettably
there is so very little time for oversight with all the other
work which we have before us. The homeland security issue and
our oversight on the Foreign Intelligence Surveillance Act and
the Intelligence Committees have sort of sucked all the air out
of Washington on so many, many other things. I have other
commitments that I have to excuse myself for, but I wanted to
come by to say that I will be following it closely with the
record and with staff.
I have one question which I would like to ask both of you
gentlemen. I hear recurring complaints from a variety of
sources about the length of time that investigations take. When
a company is subject to an investigation, it puts them on hold
on many of the items on their agenda, such as raising capital,
which is especially tough now.
I know that you cannot put any time limit on
investigations. It can't be done. I have done enough work in
the investigative field both as district attorney and in the
Senate to know that you investigate until you conclude what you
have to do.
But the question I have for each of you is, is it a fair
request for companies or for Senators to inquire as to a
termination date, whether you can give it or not? Is that a
fair request or do you think that that is inappropriately
intrusive?
Mr. James, we will start with you.
Mr. James. I think you have to divide the merger and non-
merger world into separate pieces. I think it can be a fair
request, Senator, if the parties are prepared to do what is
necessary to bring the investigation to a conclusion.
Our Merger Review Process Initiative is intended to do just
that; that is to say, that we meet with the parties at a very
early time. We try to work with them on a schedule for getting
done what needs to get done. If they are willing to cooperate
to provide information on particular dates and commit to do
that, and if they are willing to make their executives
available for depositions within the timeframes we need, we are
prepared to agree to a particular date upon which the
investigation will conclude. That is something that we think we
have gotten very, very positive responses on from the business
community.
On nonmerger civil investigations, part of the problem is
that many parties believe that until the investigation
concludes, they are winning. So they have this tendency to try
to take the agencies on what I call the ``long stroll through
the park.''
We are taking aggressive steps to change that practice. I
discovered recently that it has been quite some time since the
Antitrust Division has ever sought to move to compel somebody
to comply with some of our CIDs, and I have talked to our staff
very aggressively about making sure that our CIDs are complied
with promptly, that we take the important investigative steps
to make that possible, and that we move people along in these
merger investigations.
The data indicates that these investigations are taking
between 1.9 and 2.4 years, on average. I think that is too long
in a fast-paced economy, and we are doing everything we can to
expedite things.
Senator Specter. Well, I think that is a very good
position, reasonable and equitable, looking for cooperation and
being willing to move it along as fast as you can. I think that
is fine.
Mr. Muris, would you concur with that?
Mr. Muris. Yes, Senator, and I commend Charles for his
leadership in this area. We also have been active here. One of
the things we have done recently to hold a series of workshops
around the country to get away from individual cases, talk
generally about our merger investigations, about how we can do
them better and faster.
In a non-adversarial setting, we have been receiving some
very good comments and suggestions. For example, some people
have told us, discussed our standard second request--they have
sort of done an anthropology and gone back and said, well, you
added this specification in 1987, and then this one, and maybe
you ought to rethink the package. Those are useful comments and
they are easier to deal with when we are in a non-adversarial
setting rather than not in the context of an individual case.
Senator Specter. Thank you very much. Thank you for those
answers, and thank you, Mr. Chairman.
Chairman Kohl. Thank you, Senator Specter.
I would like to come back, Mr. Muris, to these incessant
calls being made across the country. You are saying you are in
the advanced stages of a rulemaking process which, when
concluded, if you will have adequate funding to implement that
rule, you will be able to eliminate some 80 percent of these
calls across the country? How will that work?
Mr. Muris. Well, for people who register on the list, and
if the----
Chairman Kohl. People will then have to call. How will this
work if I want to be on that list of non-call?
Mr. Muris. There will be several ways and we could put you
very early on the list.
[Laughter.]
Mr. Muris. We will certainly have a number for people to
call in Washington. There are now 25 States that have ``do not
call'' statutes, several of them very recently passed, and we
are talking extensively with the States about harmonizing. One
of the things that we hope to be able to do is have the people
who are already signed up on State lists registered on our
list.
When the rule is implemented, it will be very simple to put
yourself on the list. You call your State or us, and then the
telemarketers will have an obligation under the Telemarketing
Sales Act to check the list--and, again, we are still working
out the final details and haven't taken the final votes. If
they do not comply, if they call people who are on the list,
they will be violating the Telemarketing Sales Act.
Chairman Kohl. They will be subject to severe fine?
Mr. Muris. Yes, and we have already tentatively budgeted a
very large number of people, again assuming we get these funds,
a large number of FTE for initial enforcement. Of course, we
will work with the telemarketing industry, work with the States
to go through an education process, both informing the
consumers and informing the telemarketers about the new
requirements of the rule. And those who don't comply, we will
have aggressive enforcement.
Under the Telemarketing Sales Act, the States can enforce
our rule and we expect that what many of them will do, as well,
is pass a State law that would, in essence, make violation of
our rule a violation of the State law. So we expect quite a bit
of cooperation from the States, from the industry, education to
consumers, and enforcement as it is needed.
Chairman Kohl. When one calls, will they then be placed
immediately on this so-called national registry?
Mr. Muris. Yes, when the rule goes into effect. We don't
want to encourage anyone to call yet, but we will, we hope, on
a State-by-State basis, given these various rules, be able to
work with people to instruct them how to call.
We have over 4,000 people on our media list. Most
newspapers and TV stations of significant size have a consumer
reporter, and we will be talking to them. They are a very
important group for us in educating the public. We spend
slightly more than half of our resources on consumer
protection, and so that is a very large part of what we do. We
already have, we believe, this educational network
significantly in place.
Chairman Kohl. Among the 80 percent of the calls now being
placed across the country, which industries are we going to net
in this?
Mr. Muris. It is an interesting question. It is hard to get
precise evidence. Obviously, a large number of calls come from
financial institutions. A lot of them come from long-distance
services, but there are a wide variety of industries that make
so-called cold calls, which are the calls you receive from
someone you don't know or you don't have a relationship with.
Those are among the most prominent industries.
Chairman Kohl. Well, who won't you be able to cover, and
for what reason?
Mr. Muris. One of the biggest exempt groups involves the
calls from political campaigns. The Telemarketing Sales Act
effectively exempts all sorts of polling, as well as, private
polling. As I mentioned, the PATRIOT Act made for-profit
telemarketing on behalf of charities subject to the
Telemarketing Sales Act. At least my recommendation would be to
treat them differently, for both constitutional and other legal
reasons. We have discussed this issue with the charities and I
believe the charities are happy with what we are considering.
Chairman Kohl. Do you expect to be able to implement this
rule within the next 6 months?
Mr. Muris. We hope that we can promulgate the rule, vote it
up or down, whatever, by the end of the year, and then begin
the process of implementation. The actual first phone calls
wouldn't occur until sometime well into next year. We may have
to promulgate the rule and wait for Congress to act on the
funding issues.
I know it would be a difficult thing to do, but if there is
a long-run CR past Thanksgiving well into next year, which some
people are considering, if we could put a provision on it to
allow us to spend this money, then it wouldn't slow down the
implementation. Otherwise, the implementation will not occur.
Chairman Kohl. Until the funding is there?
Mr. Muris. Yes.
Chairman Kohl. This $10 to $12 million that you are talking
about?
Mr. Muris. Yes.
Chairman Kohl. Well, it sounds great. I mean, that would be
an alleviation of a huge problem across this country and I am
very enthusiastic to hear about your advanced state of
preparation to end this problem. I am looking forward to
working with you and doing everything I can in the
appropriations process to get that funding.
Mr. Muris. Thank you very much, Senator.
Chairman Kohl. Thank you.
Mr. James, when you were confirmed for your position as
Assistant Attorney General in charge of the Antitrust Division,
no one doubted that your credentials were considerable, your
qualifications were and are considerable, as was your expertise
in antitrust law.
However, some were concerned whether your harsh criticism
of the Government's antitrust enforcement activities in the
past would mean perhaps that you would take a more hands-off
approach to antitrust enforcement. Everybody preferred to give
you the benefit of every doubt. However, some of your critics
believe at this point that their fears have been at least
partially realized. Let's go through a couple of their points.
First, they point to the Antitrust Division's own
statistics which show a sharp decline in enforcement activity
since you assumed your position last year. While it is true
that the number of merger filings you have received has
substantially declined in the last couple of years, the decline
in the Antitrust Division workload is not limited to your
review of mergers and acquisitions.
For example, the number of civil, non-merger investigations
has declined about 30 percent from its annual average of the
last 4 years of your predecessor's term. Likewise, the number
of criminal cases filed with 2 weeks remaining in fiscal year
2002 is nearly half the average of the annual number of cases
filed during the previous 5 years.
Do these statistics indicate that the Antitrust Division
has decided to adopt a less aggressive posture with respect to
antitrust enforcement?
Mr. James. Senator, not at all. I am confused a little bit
by the data that you report with regard to civil nonmerger
investigations. The data that we have indicates that we have
commenced civil nonmerger investigations at a higher rate than
in the last 2 years of the Clinton administration--not that
year-over-year comparisons are necessarily apples-to-apples
comparisons in this business because we are not, after all,
making widgets here.
But the fact of the matter is that we have a serious
commitment to civil nonmerger enforcement. As I said, we
reorganized the Antitrust Division in part because in the past
civil nonmerger activities were expected to be conducted by one
shop of about 25 lawyers. We have placed that responsibility in
all of our enforcement sections and given them responsibility
for specific commodities.
I think Senator DeWine mentioned that joint ventures and
other kinds of collaborative activities short of mergers have
become an important part of what is going on in the economy
because mergers are more difficult to fund and finance in
today's world. We have made that our top priority. We have
perhaps more joint venture investigations underway at the
present time than at any time in the recent past.
In terms of our criminal enforcement situation, we think
that we have done a very good job in keeping things going. As I
said, we have 99 grand jury investigations. I don't think any
of the defendants who have been sentenced in Antitrust Division
cases who are now getting higher sentences and in some
instances record sentences feel any diminution in our efforts.
Our efforts aimed at international cartel activities are
continuing apace. Forty of our 99 grand juries involve
international cartel activities.
I am fully committed to vigorous antitrust enforcement; our
staff is as well. I think a lot of the criticism represents a
view of the numbers in a variety of different ways. I think the
real numbers show you that we have the investigations and we
have the enforcement actions.
One of the things that we have seen in some of the
characterizations of the numbers is a refusal to count in our
merger challenges situations in which we have adopted a ``fix
it first'' approach, which is something the Antitrust Division
has done as a matter of policy for 20 years.
Those are real merger challenges. When parties undergo an
extensive investigation and at the conclusion of the
investigation decide that they are going to restructure their
transaction proposal and we respond to that, that is, in
effect, a merger action that is as significant as any other.
So we are very proud of our enforcement record and we think
it is as vigorous as it possibly can be under the
circumstances.
Chairman Kohl. I just want to read my numbers again. They
don't comport with yours. It is probably more true of me than
it is of you that they say figures don't lie, but liars can
figure. But we are talking about me, I am sure, more than you.
Here is what I want to say again, and apparently you would
disagree. The number of civil, nonmerger investigations has
declined about 30 percent from its annual average of the last 4
years of your predecessor's term. Also, the number of criminal
cases filed with 2 weeks remaining in this year is nearly half
the average of the annual number of cases filed during the
preceding 5 years.
Now, we don't have to maybe come to a definitive answer on
that now, but I think we need to come to some conclusion on
which numbers are----
Mr. James. Senator, I would like to offer you a written
clarification because I don't have the numbers right in front
of me.
Chairman Kohl. OK.
Mr. James. But I will represent to you today that on the
civil nonmerger front our numbers are absolutely solid and we
have commenced more investigations than in the past.
On the criminal side, the criminal enforcement program has
gone up and down, and we don't invent the crimes, we just
prosecute them. We have had a situation where in the prior
administration they benefited from a change in our criminal
amnesty program, which generated a number of cases, and other
events.
I can tell you that our staff is doing everything humanly
possible in the form of outreach in particular sectors, such as
working with procurement officials to discover important
criminal cases. And I think that our number at the end of the
year will be perhaps, if lower, certainly within a range of an
important level of enforcement.
Chairman Kohl. Just one other comment on the numbers. Is
the sharp decline in the number of initial pre-merger
investigations initiated by the Antitrust Division in fiscal
year 2002--two-thirds less than the annual average from the
years 1997 to 2000--is this attributable to the decline in pre-
merger filings, or is there perhaps something else going on
here?
Mr. James. Actually, Senator, I do happen to have those
numbers in front of me. In each of the 2-years, fiscal 1901 and
1902, we had actually commenced pre-merger investigations and
issued second requests as a higher proportion of the mergers,
or higher percentage of the mergers, than any of the last 3
years of the prior administration.
We issued second requests, I believe, or started
investigations in roughly around 4.5 percent of mergers in 2001
and 5.31 percent in 2002. The comparable numbers for the last 2
years of the prior administration were 3.71 percent and 2.78
percent. So, actually, as a percentage of the filings we are
getting, we are conducting more investigations.
Chairman Kohl. This past year, you eliminated the Civil
Task Force, the unit devoted to pursuing civil, nonmerger
cases, and the Health Care Task Force, the unit devoted to
antitrust enforcement in the health care industry. It is my
understanding that the attorneys and staff in these sections
have been dispersed to other parts of the Division and will no
longer solely specialize in these areas.
Is there not a danger of losing the expertise of the staff
of those sections by eliminating these task forces, and does
this signal a lessening of the Division's commitment to civil,
nonmerger antitrust enforcement in the health care sector?
Mr. James. Well, starting first with the civil, nonmerger
area, one of the things that I discovered when I first began
looking at this issue was that our so-called Civil Task Force
was actually spending most of its time on merger enforcement. I
think 70 percent of its docket was merger enforcement, in part
because of the absence of a pipeline of civil nonmerger
investigations at that time.
We have taken a slightly different approach, in part
because we want to broaden the expertise of our sections, and,
in part because we want to do what I call community policing.
As Senator DeWine mentioned, these joint ventures and other
forms of collaborative activity that make up nonmerger civil
enforcement take place outside the context of any kind of pre-
transactional reporting.
Agency lawyers must actually focus and be experts on these
industries in order for them to identify the transactions that
they need to investigate. In other words, transactions don't
always report themselves to us.
Our reorganization by, first of all, making all of our
sections responsible for the full range of civil enforcement,
and second by assigning specific commodity responsibility and
accountability to individual sections, has our lawyers now
looking much more aggressively for opportunities to bring civil
nonmerger cases. Hence the reason we have started these
investigations at a faster pace than the prior administration.
With regard to health care, the Department of Justice has
played a significant role in health care and continues to play
a significant role. If you look at the last 10 years or so, the
Department of Justice has never been particularly active on the
doctor side of the provider equation. That is something that
historically has been more of the focus of the Federal Trade
Commission.
The situation in hospital mergers is pretty well-known to
the Committee. The agencies have an unending string of lost
hospital merger cases. As a matter of fact, one has not been
brought in recent years.
Although we are very interested in enforcing the antitrust
laws in all areas of health care, we place most of our emphasis
on a portion of the health care industry that has been almost
forgotten, and that is the payor side. I think many people have
noted the increased concentration in the payor industry,
insurance companies and managed care plans, and we have done a
fair amount of outreach and are focusing our efforts on looking
for significant antitrust issues in that sector.
In the past year, we have had a couple of matters where we
commenced investigations and the mere commencement of the
investigation caused insurance companies to decline to
implement certain practices about which we had raised
questions.
We think our health care program is active. The lawyers who
are involved and knowledgeable about these issues continue to
work on them. They have not been just dispersed arbitrarily
across the Antitrust Division. They have been dispersed in a
manner that has kept case teams and expertise together, and so
we expect to be an excellent partner for Tim Muris in enforcing
the antitrust laws with regard to the health care industry.
Chairman Kohl. All right. Mr. James, on Microsoft, in many
respects your legacy is going to be defined by your settlement
of the ground-breaking Microsoft case. Many people call this
the antitrust trial of the century.
We think that you will agree that this settlement will not
be considered a success if, at the end of the 5-year term,
Microsoft retains its dominant position in the computer
software industry, retaining its 95-percent market share in
personal computer operating systems and its more than 90-
percent share in Web browsers.
Now, I am willing to bet that Microsoft 5 years from today
will be just as dominant as it is now. So my question to you is
this: Are you willing to take my bet? Are you confident that
Microsoft's domination will turn around and that the settlement
will bring the real competition to the computer software market
that it was intended to do?
Mr. James. Senator, I think one of the most important
issues here is the premise of the question. The antitrust case
that the Department of Justice commenced against Microsoft
assumed as an initial matter that Microsoft was a monopolist in
the area of operating systems, and it conceded that, there
being no record or presentation to the contrary, that they had
obtained that monopoly position through lawful means. The crux
of the case that we brought was one that focused on certain
practices that they engaged in in the exercise of the monopoly
that they had.
Our settlement addresses the conduct that the court of
appeals found unlawful and sustained in our case. One of the
most important things to remember about this case is the very
substantial way in which the court of appeals narrowed the case
from its original focus. It eliminated substantial portions of
the case in terms of office market monopolization, the monopoly
leveraging claim, the exclusive dealing claim, and the tying
claim, and the attempted monopolization claim.
I think that the case that emerged from the court of
appeals was a very different one than the one that was
initially brought, and we believe that our settlement will have
the effect of eliminating those practices. Then the marketplace
will have to determine who has what share of which markets. But
we are committed to making sure it is the marketplace, and not
Microsoft's private conduct, that makes that determination.
Chairman Kohl. So you say that 5 years from today under
certain circumstances, if they retain their 95-percent share in
computer operating systems and 90-percent share in Web
browsers, under certain conditions that would be all right?
Mr. James. If that is the result that the market dictates,
free from unlawful restraints imposed by Microsoft, I think
that is the result that we have to live with under the
antitrust laws.
Chairman Kohl. While the settlement has not been approved
by the court, I understand that Microsoft has agreed to
implement some of the provisions right away. Just yesterday,
the industry group Pro Comp wrote to you to report, quote, ``at
least six separate and ongoing violations of one section of the
lengthy settlement agreement.''
Have you been satisfied with the manner in which Microsoft
has implemented the settlement thus far?
Mr. James. As of this point, Microsoft is operating under
the stipulation to undertake certain specific actions of the
consent decree, because as you mentioned, the decree itself has
not been entered. The types of actions that are the subject of
the Pro Comp letter are things that are just being rolled out.
We are absolutely committed to making sure that Microsoft
lives up to the letter and the spirit of our consent decree,
and we have indicated to the computer industry that we expect
to work with them very closely in making sure that occurs.
We have done so by reaching out to members of the computer
community. We have developed a program that we call our
Microsoft compliance advisory program in which when significant
developments occur, we note them on our Web site and encourage
people to comment.
As you noted, perhaps not coincidentally the Pro Comp
letter was issued late in the day yesterday, and so we haven't
had the opportunity to work with it. We have certainly been
trying to encourage input from these companies, and we hope
that they will work with us rather than just sort of sitting
back and trying to have press events, because we think their
constructive input into the process will help the consent
decree operate in the way that it should.
Chairman Kohl. Will you commit to pursuing another
antitrust enforcement action against Microsoft if you determine
that Microsoft is engaged in additional anti-competitive
practices in the future, Mr. James?
Mr. James. Absolutely. When we looked at the Antitrust
Division as part of our reorganization, we saw we had a
computer shop that didn't handle the computer industry, but
really did other things. One of the things that we have done
through the reorganization is to create a cradle of expertise
in that computer shop, and we also took the extraordinary step
of creating a linkage between our computer shop here in
Washington, our networks and technology section, and our San
Francisco field office, which has good contacts and other
things in Silicon Valley.
We appointed a coordinator there in the San Francisco field
office and made the assistant chief of the San Francisco field
office the co-assistant chief of our networks and technology
section. So we are very committed to pursuing antitrust cases
as appropriate in the computer industry, whether they involve
Microsoft or any other significant information technology
provider.
Chairman Kohl. All right. Mr. James, people, as we know, in
America adore their television sets and millions of consumers
will pay to subscribe to a cable or satellite television
service in order to get more channels and better picture
quality.
Fostering competition and ensuring a level playing field in
this market is essential to discipline rates and improve
service quality. Unfortunately, every year it seems we witness
increased cable rates and yet another merger in this industry.
Indeed, cable rates have gone up more than triple the rate of
inflation since 1996. Consolidation and not competition is the
trend in the subscription television market and, of course, it
is troubling.
Let's focus on some of the recent merger activities in this
sector. Currently, the Antitrust Division is considering a very
important merger for millions of American consumers, a proposed
merger by the only two companies offering satellite television,
Echostar and DirecTV. In my view, this merger is highly
problematic. It would create a monopoly in the satellite TV
business, and therefore likely cause substantial harm to
consumers of subscription television, especially those in rural
areas where there is no effective cable TV competitor.
Now, Mr. James, we know that you cannot comment on a
pending merger, but can you at least tell us when we can expect
you to reach a decision?
Mr. James. Certainly, Senator. As you point out, this is a
very important transaction. At best, it is a three-to-two
merger, and, as you point out, in some instances it is a two-
to-one merger, and is very important to the future direction of
multi-channel video programming delivery.
I can tell you that as I sit here, there is not a single
matter in the Antitrust Division at present that is consuming
more resources and getting more attention than the DirecTV/
Echostar transaction. What you will probably note is that in
all of the areas where there is a separate antitrust review and
an overlaying regulatory review, the transactions tend to get
timed out according to the progress of the regulatory review.
In this case, the DirecTV/Echostar proceeding at the FCC has
been on and off again as they have stopped and started the
clock.
We are moving to bring this investigation to a prompt
conclusion and we hope to do so as quickly as possible. We have
been conducting discovery as late as last week. We are looking
at it very closely. We are going to reach our conclusion as
quickly as possible. I don't think that it would be appropriate
for me to say that it is going to be a month, 20 days, 35 days,
but I can tell you that when the transaction is ripe for
decision, a decision will be made and we are very serious about
this transaction.
Chairman Kohl. All right. Mr. James, if allowed to merge,
AT&T and Comcast will be the largest cable company in the
country with more than 22 million subscribers, or about 30
percent of the Nation's cable television market. We were
surprised when this week the Justice Department let the
deadline for dealing with this merger pass without doing
anything.
How can the Antitrust Division let such a giant merger go
without even a whisper of concern or the most modest of
conditions? Surely, reasonable people can agree that this deal
poses some antitrust concerns.
Mr. James. Senator, as I sit here, I am not quite sure what
prompted the company to issue the press release that it issued
yesterday. Our investigation of the transaction is continuing.
As I mentioned earlier, it is fairly customary for the timing
of these matters to proceed on the pace of a companion
regulatory proceeding.
You may recall, for example, that the FTC's AOL/Time Warner
investigation took roughly a year because of the overlaying FCC
review process. Unless matters are reviewed by consent decree,
it is certainly the case that we are not in a position to move
against them because there is no imminent harm.
But lest there be any confusion about the status of our
ongoing inquiry, when I saw this announcement in the media I
directed the staff that we were to instruct the parties that
the investigation is ongoing and we will bring that to a
conclusion as promptly as possible.
Chairman Kohl. OK. News reports indicate that CableVision,
with more than 3 million cable subscribers, is considering a
sale of its cable assets. To be sure, if purchased by AOL-Time
Warner or AT&T/Comcast, it will simply be a case of the big
getting even bigger. So where do you draw the line?
Some would argue that these are adjacent monopolies that
don't compete with each other, so therefore let them merge. Is
there any level of concentration in the cable industry that you
would find unacceptable? Wouldn't your analysis of the AT&T/
Comcast deal permit the industry to consolidate to only one
national cable company if there were no ownership limits at the
FCC?
Mr. James. Well, again, the AT&T/Comcast transaction is
ongoing. We obviously have to look in all of these transactions
for instances of competitive overlap between the cable systems.
We certainly look at these transactions to see whether a
company that has a large number of cable systems across a
number of markets could potentially have an effect on the
content market.
We also look at these transactions to determine whether or
not they have any impact on the commercialization of delivery
technologies, like set-top box software technology. In all of
these transactions, we look at them on the merits and we are
looking for instances in which the transactions will have
adverse competitive effects. So it is not just a matter of
whether or not there is an end-to-end situation, meaning
adjacent markets, but there all a whole host of horizontal and
vertical issues that we examine.
Chairman Kohl. Mr. James, another issue we have recently
been hearing about concerns competitive cable TV companies.
These are the over-builder companies that come into a city and
build a fresh, new cable system to go head-to-head with the
incumbent cable company. These competitive, new over-builder
cable companies say that they have been the victims of
allegedly predatory practices designed to drive them out of the
market by the large incumbent cable TV companies.
These practices allegedly include incumbents offering
drastically reduced, below-cost pricing of programming only in
the areas that these upstart competitors operate. These
allegations are especially disturbing because the presence of
these new competing cable companies are one of the few things
that seems to restrain cable rates which continue to rise
several times, as I said, above the rate of inflation.
Mr. James, what is your view of these allegations of
predatory practices in the cable TV industry? Will the
Antitrust Division be investigating these allegations?
Mr. James. Senator Kohl, I think the types of allegations
that you are talking about--predatory pricing allegations in
cable over-build situations--are questions that have been
raised ever since local governments have been giving out cable
franchises.
There has been a fair amount of private litigation on this
topic. I am not aware of very much of it that has been
successful. The economic viability of a second cable operator
is open to question, particularly in light of the advent of
satellite delivery. There is a very stringent legal standard
for proving predatory pricing in this industry and others.
But the question that you raise is an important enough
issue that we need to look at periodically as the pricing
structure of both cable television and other delivery systems
change, and as the nature of content relationships change. I
know for a fact that we have at least one circumstance in which
allegations of predation involving an over-build are under
investigation and we are taking a serious look at it.
Chairman Kohl. Chairman Muris, what is your view of cable
consolidation?
Mr. Muris. Certainly, Senator, it is important to view any
sort of consolidation in the context of the relevant geographic
markets. In some industries--and I am not, quite frankly, as
familiar with cable as I am with a lot of the other industries
we deal with every day--the relevant geographic markets are not
national.
I do think that when you have consolidation, it is
important to understand the reasons for consolidation.
Sometimes, I think the consolidation goes too far, and I think
the Commission has been appropriately aggressive in a
bipartisan fashion on mergers--which, as you know, is our
primary vehicle for dealing with the issue.
Chairman Kohl. This is for both of you, gentlemen. In the
last few years, we have all seen a great wave of consolidation
in the media and entertainment industries. Blockbuster deals
like AOL/Time Warner, CBS/Viacom, and most recently Comcast/
AT&T have become routine, and it seems like fewer and fewer
companies are controlling the sources of information, news, and
entertainment for the American public.
Many people are concerned about the ability of smaller
independent voices to be heard or seen in today's huge,
consolidated media industry. Former FTC Chairman Pitofsky held
the view, a view that I happen to share, that when dealing with
mergers in the media, unlike mergers in other industries such
as banks, oil companies, or cereal companies, for example, we
must give them a more exacting scrutiny because these mergers
affect competition in the marketplace of ideas which are so
central to our First Amendment liberties.
Mr. James, first of all, do you agree with that observation
by Mr. Pitofsky?
Mr. James. Well, if I understand former Chairman Pitofsky's
remarks to indicate that the media industries are important
industries and therefore they merit very close scrutiny in the
merger area, I think that is absolutely correct.
If, on the other hand, former Chairman Pitofsky is
suggesting that there can be an antitrust basis for analyzing a
media transaction on some basis other than the economic
consequences of the transaction, I am not sure that I would
agree with that proposition.
The concept of diversity of viewpoints in ownership of
media outlets is something that is more specifically under the
province of the FCC, which regulates this as a matter of
licensing and public interest determinations. Our approach to
these media consolidations is to look predominantly at their
economic consequences in terms of advertising, provision of
service, innovation, and the types of competition-oriented
concepts with which we are all familiar.
The Antitrust Division would have a very difficult basis
for asserting in a legal challenge that the pure issue that was
before the court was the diversity of voices in a content
sense. I am not aware of any situation in which an antitrust
agency has ever challenged a transaction on that basis.
But I agree with you that these are very, very important
transactions. We look at them closely, and we do look at
content, but not from the standpoint of diversity of content,
but really the economic consequences of content.
Chairman Kohl. I am not sure Mr. Pitofsky would agree with
that, but I respect your opinion.
Chairman Muris?
Mr. Muris. I agree with Charles, but let me amplify with a
couple of points. One, I have known Bob Pitofsky for a long
time, since 1976. I think as chairman, his views in action were
more constrained than some of his writings had been, in part
because the law was a constraint. I think that is the point
Charles is making.
On the other hand, I think there is a substantial overlap
between the concerns that you are expressing in the context of
diversity of ideas and antitrust issues in the sense that in
terms of programming, in terms of consolidation, in terms of
mergers, in terms of potential exclusion, you can have
antitrust issues that arise in traditional terms. And I think
these issues are all the more sensitive because of the
sensitive nature of the industry.
Chairman Kohl. Mr. James, just to followup, aren't you
concerned that the current pace of media consolidation will
hamper greatly the ability of independent voices in this
country to be heard? Are we in danger of just a very few
companies controlling the news and entertainment choices for
much of our country?
Mr. James. Senator Kohl, actually during my brief 15 months
with the Antitrust Division, there has been very little media
consolidation because there have been very few mergers filed.
But I echo concern about this, and I think what Tim and I are
trying to say in our perhaps inartful way is that there can be
an economic market for content. And to the extent that there is
an economic market for content, for example, if you were take
the production of movies, there can be economic consequences to
that.
I don't know that I would be the person who would want to
regulate how many dramas versus how many comedies were
produced. But we certainly would look at the economic
consequences of the market for the production of movies.
In other sorts of contexts, programming is provided and the
medium in which it is exchanged is advertising. So the control
over the outlets or the creation of the programming that sells
the advertising is what we look at. But we are trying to really
make a distinction between those types of economic consequences
and other kinds of consequences.
But I share the concerns. I am an American citizen. I have
a television in my house and I would like to see diverse and
broad programming. I am just not altogether sure that it is
within the Antitrust Division's scope or that the Antitrust
Division has the capability to make sure that happens.
Chairman Kohl. You have a role, though.
Mr. James. We certainly have a role in regulating the
economic circumstances of these markets, or at least enforcing
the antitrust laws as they apply to the economic circumstances.
Chairman Kohl. Do you have a role in trying to ensure the
diversity of opinion that you talk about wanting to see?
Mr. James. I would say that we have the role of ensuring
that there are economic options available in a competitive
market, sir.
Chairman Kohl. Mr. Muris?
Mr. Muris. Again, I agree with Charles. I am not sure this
is your premise, but I suppose it depends on what your baseline
is. We have had a tremendous increase in the forms of news
outlets that we have, plus the Internet is a whole new world. I
think it is important, to the extent that anticompetitive
activities limit those options, that the antitrust laws be
vigilant.
What Charles and I are partly trying to say is that,
although expressed in different terms than antitrust lawyers
would express it, there is a substantial overlap between
concerns about diversity and the antitrust laws. In other
words, some of the concerns can be presented in the economic
terms that we deal with every day in the antitrust laws.
Chairman Kohl. All right, gentlemen, let's talk a little
bit about airline competition.
Mr. James, one of the priorities of our work in the
Antitrust Subcommittee has been airline competition. We all
know that the airline industry has gone through tremendous
difficulties since the tragedies of last September 11, so much
so that the survival of several of the Nation's leading
airlines is in doubt.
We are sympathetic to the difficulties faced by these
airlines and their employees. Nonetheless, we remain committed
to retaining a competitive airline market in the face of these
challenges. We must not allow competition in the airline
industry to be another casualty of September 11. Without real
airline competition, millions of travelers are likely to suffer
higher fares and diminished choice for air travel.
Recently, much attention has been focused on proposals by
three large airlines--Delta, Northwest and Continental--to form
an alliance. In addition, United and US Airways recently
announced a code-sharing arrangement. Last year, the Antitrust
Division moved to block the proposed merger between United and
US Airways. Now, these two airlines want to engage in code-
sharing.
What is the difference between these alliances and code-
sharing and a merger? If you would not allow a merger, would
you allow airlines to engage in cooperative arrangements like
code-sharing and alliances, Mr. James?
Mr. James. Senator Kohl, I apologize. By virtue of my
former life, I have recused myself from all airline matters and
that is being handled by one of my deputies.
I will say to you just as an observer that the Antitrust
Division has been as aggressive in the airline industry as it
has been in any industry. You pointed out the US Air/United
transaction. We sent forth comments that I think the parties
would view as adverse in the British Air code-share arrangement
to DOT, and the DOT ultimately conditioned the transaction on
many of the bases that we had suggested. We have sent comments
forward opposing the antitrust transaction for the Air Hawaii
transaction.
Just generally, I would note you mentioned the financial
circumstances of the companies in this industry. There are
circumstances in which financial condition is relevant to
antitrust analysis. But as a general policy matter, in the
airline industry and elsewhere, we at the Antitrust Division
take the view that there is no reason to assume that the
antitrust laws ought to be enforced any less vigorously in
industries on a downward trend than on industries in an upward
trend.
We are just calling them as we see them in this area and
others, and if you would like a more specific answer to your
question on code-sharing arrangements, I am certain that I can
get you one.
Chairman Kohl. OK. A question on international antitrust
issues. Mr. James, we have been working for the last few years
to achieve greater harmonization between United States and
European antitrust enforcement agencies. However, recently it
seems that in several cases the European antitrust authorities
have relaxed their enforcement activities and many people
wonder if they are following your lead.
For example, in a development that surprised many
observers, European Competition Commissioner Monti decided to
approve the merger of two cruise lines, Carnival and Princess
Cruises, after threatening in June to block the deal because of
the dominance of the combined company.
Many are concerned that the apparent change in direction in
European antitrust enforcement has been influenced by pressure
from U.S. antitrust agencies. This past May, you visited
Brussels and met with Commissioner Monti. During your visit,
you gave an interview with the Financial Times which many
observers interpreted as skepticism regarding the legal basis
for the EC's investigation of Microsoft. You were also quite
critical of the EC's decision to block the GE/Honeywell merger
last year.
Have you attempted to influence the EC and Mr. Monti to
relax their antitrust enforcement efforts, including with
respect to the EC's investigation of Microsoft? How do you
respond to those who are concerned that the Justice Department
is urging the EC to lessen its antitrust enforcement?
Mr. James. I don't think there is any basis for suggesting
that we are encouraging the EC to lessen its enforcement. As we
all know, Senator, we now live in a global economy and there is
certainly the prospect, with 100-some-odd antitrust agencies
enforcing the antitrust laws on their own terms, that we will
have conflict, confusion, and divergent outcomes.
Our work with the European Union is designed to achieve
policy harmonization and convergence so that the rules of
competition apply equally across the board such that, in
particular, nationals of one country are not disadvantaged when
they attempt to compete in another.
We have made no effort to influence the European Union
about any particular case. Our discussions with them are either
on a policy basis or, in the context of an individual case, on
a consultative, informational basis. We have discovered in the
course of trying to make antitrust enforcement effective that
it is important that our agencies are both getting the same
information from parties who are proposing mergers. It is very
important that we know the type of information that is being
provided there and that they know the type of information that
is being provided here.
I can assure you that we have a commitment to vigorous
enforcement of the antitrust laws in the United States. I know
that Commissioner Monti has the same kind of commitment in
Europe, and we are certainly not encouraging him to make his
enforcement lax.
Chairman Kohl. But you were critical of the EC's decision
to block the GE/Honeywell merger last year.
Mr. James. I was critical, I think, of the basis upon which
it was done. I pointed out that it did, in fact, represent a
divergence from what we understand to be appropriate
competition policy; that is, policy that protects competition
and not necessarily competitors. The case is under review by
the European courts and we will have to see how the European
courts resolve this issue.
I was not criticizing, Commissioner Monti or the European
Union, but rather I think we were talking about the way in
which their theory diverged from ours. We think that it is
important to stimulate within the academic and intellectual and
business community debate about which are the appropriate
theories that should be pursued, because if we are all doing
our job and the intellectual vigor of this debate is
appropriate, then we will all ultimately be informed by the
right intellectual thought process on these issues.
Chairman Kohl. Chairman Muris, as in so many other
industries, we have seen an enormous amount of consolidation in
the drug industry, most recently the merger between Pfizer and
Pharmacia. Yet, prescription drug prices continue to rise.
Are you concerned with this consolidation in the
pharmaceutical industry? What are the implications of this
consolidation for consumers who are looking for cheaper drug
prices?
Mr. Muris. The issue of drug prices is extraordinarily
important to us. As I mentioned, we have doubled our resources
devoted to health care, and by far and away most of the effort
is in the pharmaceutical area.
The Pfizer merger is obviously before us and at a very
early stage; and so I can not comment further. I can say that
we have been extraordinarily aggressive particularly, in the
last year, on the issue of what we consider problems in
misusing the Hatch-Waxman amendments.
We have brought several cases both before and after I
arrived was there. I think those cases are an excellent example
of how antitrust can indeed lower prices for consumers. We have
many more investigations underway, and Congress is now paying
great attention, as I mentioned before, with the Senate's
passage of S. 812. So it is an extremely important area. One of
the reasons we have antitrust laws is just for these kinds of
situations.
Chairman Kohl. The last question, gentlemen, is I would
just like to ask both of you what is your philosophy and how
does it differ from the philosophy of your immediate
predecessor to antitrust enforcement--you, Mr. James, with
respect to Joel Klein, and you, Mr. Muris, with respect to
Robert Pitofsky.
We will start with you, Mr. James. How does your approach
differ?
Mr. James. Well, I don't know that it necessarily does. As
I know Joel, what he attempted to do at the Antitrust Division
is to bring a legally-based approach to antitrust enforcement.
I think he tried to the best of his ability to conduct thorough
investigations, to let cases be decided by the facts, and to
bring the cases where the facts and the law indicated a
violation. That is certainly my approach, and so I don't know
that there is much of a difference.
I think in terms of how we have done the job, we came into
the Antitrust Division after it had undergone a substantial
merger wave that had caused the agency to engage in a lot of
triage and not have the time to focus on process, investigative
technique, and things of that nature.
I have been a professional antitrust lawyer my whole career
and I have put a lot of emphasis on getting the agency in good
shape with respect to organization, process, and technique. I
think we have made some progress in that respect.
But I think the time to make that comparison is really at
the end and not sort of at the beginning or in the middle. And
I think in either case what is going to dictate the difference
and result is the types of economic circumstances that we were
confronted with. Joel was confronted with a merger wave and a
lot of changes in the technology industries. I am confronted
with a joint venture wave and I am trying to make the best out
of that one.
So I think Joel and I probably have a lot of things in
common in terms of our approach to antitrust enforcement and
law enforcement and the importance of the antitrust laws.
Chairman Kohl. Would you have brought the antitrust case
against Microsoft in the first place?
Mr. James. You know, it is sort of interesting. I have read
the entire record and I would know which allegations to press
because I am looking at the end of the game and I can see what
worked in court and what didn't work. Certainly, I have full
belief in the violations that are found by the court of appeals
and we are doing our best to remedy them.
Chairman Kohl. So you imagine you probably would have
brought the antitrust case against them, maybe in different
ways, but you would have gone to court with them?
Mr. James. I would have brought a case to address the
violations that the court of appeals found, absolutely.
Chairman Kohl. OK. Chairman Muris, you have the last word.
Mr. Muris. Thank you, Senator. As I mentioned, I have known
Bob Pitofsky for a long time. In 1988, we were on the American
Bar Association Antitrust Section Committee to study the FTC,
and I think we realized that our agreement on these issues was
in probably the 85- to 90-percent range. That doesn't mean that
there are not occasionally disagreements.
During the Clinton administration, I actually criticized
the administration only on two merger cases and a few other
cases. On one of the merger cases, Microsoft-WebTV, I
criticized them for not bringing the case. On another merger
case at the FTC, I criticized them for bringing the case.
But I will say there was one very important difference
between Bob Pitofsky and myself that I announced when I was
sworn in, which is that the Commission no longer had a majority
of New York Yankee fans.
Chairman Kohl. That is serious.
Mr. Muris. Yes, sir, it is.
Chairman Kohl. Before we end this hearing, written
testimony to be entered into the record has been submitted by
the Broadband Service Providers Association, the American
Antitrust Institute, the Air Carrier Association, and the
Renewable Fuels Association.
In addition, we have data requests that we have sent to the
Department of Justice and Federal Trade Commission and the
agencies' responses to the data requests that we would like to
enter into the record.
[The information referred to appears as a submission for
the record.]
Chairman Kohl. We also have a statement that Senator Hatch
has submitted and that will be included in the record.
[The prepared statement of Senator Hatch appears as a
submission for the record.]
Chairman Kohl. The record will remain open for 1 week from
today for additional statements and questions.
We thank you for coming and this hearing is adjourned.
[Whereupon, at 3:03 p.m., the Subcommittee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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