[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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                       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
                                 ------                                

      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

                              ----------                              

                    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

                              ----------                              


                      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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