[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
STANDARDS DEVELOPMENT ORGANIZATION ADVANCEMENT ACT OF 2003
=======================================================================
HEARING
BEFORE THE
TASK FORCE ON ANTITRUST
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
H.R. 1086
__________
APRIL 9, 2003
__________
Serial No. 6
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://www.house.gov/judiciary
U.S. GOVERNMENT PRINTING OFFICE
86-408 WASHINGTON : 2003
_____________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
CHRIS CANNON, Utah SHEILA JACKSON LEE, Texas
SPENCER BACHUS, Alabama MAXINE WATERS, California
JOHN N. HOSTETTLER, Indiana MARTIN T. MEEHAN, Massachusetts
MARK GREEN, Wisconsin WILLIAM D. DELAHUNT, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
MELISSA A. HART, Pennsylvania TAMMY BALDWIN, Wisconsin
JEFF FLAKE, Arizona ANTHONY D. WEINER, New York
MIKE PENCE, Indiana ADAM B. SCHIFF, California
J. RANDY FORBES, Virginia LINDA T. SANCHEZ, California
STEVE KING, Iowa
JOHN R. CARTER, Texas
TOM FEENEY, Florida
MARSHA BLACKBURN, Tennessee
Philip G. Kiko, Chief of Staff-General Counsel
Perry H. Apelbaum, Minority Chief Counsel
----------
Note: The Task Force on Antitrust was established on March 26, 2003
and consists of all the Members of the full Judiciary Committee.
C O N T E N T S
----------
APRIL 9, 2003
OPENING STATEMENT
Page
The Honorable J. Randy Forbes, a Representative in Congress From
the State of Virginia.......................................... 1
The Honorable William D. Delahunt, a Representative in Congress
From the State of Massachusetts................................ 2
The Honorable Martin T. Meehan, a Representative in Congress From
the State of Massachusetts..................................... 3
The Honorable Howard Coble, a Representative in Congress From the
State of North Carolina........................................ 3
The Honorable Steve Chabot, a Representative in Congress From the
State of Ohio.................................................. 3
WITNESSES
Honorable James M. Shannon, President and Chief Executive
Officer, National Fire Protection Association
Oral Testimony................................................. 4
Prepared Statement............................................. 7
Mr. David Karmol, Vice President of Public Policy and Government
Affairs, American National Standards Institute
Oral Testimony................................................. 9
Prepared Statement............................................. 11
Mr. Earl Everett, Director, Department of Labor, Division of
Safety Engineering, State of Georgia
Oral Testimony................................................. 14
Prepared Statement............................................. 15
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress From the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 23
Letter in support of H.R. 1086 submitted on behalf of The
International Code Council..................................... 24
STANDARDS DEVELOPMENT ORGANIZATION ADVANCEMENT ACT OF 2003
----------
WEDNESDAY, APRIL 9, 2003
House of Representatives,
Task Force on Antitrust,
Committee on the Judiciary,
Washington, DC.
The Task Force on Antitrust met, pursuant to call, at 9
a.m., in Room 2141, Rayburn House Office Building, Hon. J.
Randy Forbes [Chairman of the Task Force on Antitrust]
presiding.
Mr. Forbes. The Task Force will come to order. Today's
meeting marks the inaugural hearing of the House Committee on
the Judiciary Antitrust Task Force. We convene today to conduct
a legislative hearing on H.R. 1086, the ``Standards Development
Organization Advancement Act of 2003.''
This legislation would foster the critical role of standard
development organizations while strongly reaffirming the
central role of our Nation's antitrust statutes in preserving
and promoting free market competition.
Standard development organizations play a pivotal role in
promoting free market competition. Technical standards form the
basis of product competition by ensuring a common interface
between technically suitable substitutable products. Standards
development in the United States is conducted largely by
private not-for-profit standard development organizations which
are best suited to keep pace with rapid technological change.
The standard setting process is governed by principles of
openness, balance transparency, consensus and due process in a
nonexclusionary manner that permits the views of all interested
parties to be fully considered.
In 1996, Congress passed legislation requiring the use of
voluntary consensus standards in Federal procurement and
regulatory activities. While this legislation has encouraged
Government use of privately developed standards, it has also
increased the vulnerability of private standards developers to
antitrust litigation. The frequency in which standards
developing organizations are named in lawsuits hampers their
effectiveness and efficiency. H.R. 1086 remedies this problem.
It must be stressed that H.R. 1086 does not immunize standard
development organizations from scrutiny under the antitrust
laws; rather, it limits recovery against these organizations to
actual economic damages while codifying the rule of reason for
antitrust scrutiny of these activities.
To further address the potential for anticompetitive
misconduct, H.R. 1086 requires standard development
organizations to disclose the nature and scope of their
activities to the Department of Justice and to the Federal
Trade Commission in order to come within the protections of the
legislation.
I am pleased that this legislation has attracted the
cosponsorship of the Chairman and Ranking Member of this
Committee as well as 12 of its Members. In this respect, H.R.
1086 continues this Committee's bipartisan tradition of
striking the proper balance between procompetitive activity
while ensuring the active role of Federal antitrust agencies in
the preservation and promotion of competition in our market
economy.
I look forward to the testimony of our distinguished panel
and now yield to Congressman Delahunt for his opening remarks.
Mr. Delahunt. I thank the Chair and I am pleased to be
here. I also want to commend the Chairman of the full
Committee, and the Ranking Member for agreeing to the creation
of this particular Task Force. It certainly makes good sense
and I am confident that it will be productive.
Like you, Mr. Forbes, I look forward to the testimony of
our witnesses and I especially want to welcome my friend, the
former Attorney General of Massachusetts, Jim Shannon, who also
served with great distinction in this House, many years ago
now, I understand. He certainly has been an eloquent champion
of this bill and I want to say how good it is to have him here,
and I know that I echo the sentiments of his other dear friend
on this Committee, Mr. Meehan.
Nearly 20 years ago Congress passed legislation known as
the National Cooperative Research Act, which permitted certain
cooperative ventures to reduce their exposure to treble damages
under the antitrust laws by making advanced disclosures of
their activities. The bill before us would provide similar
relief to nonprofit organizations that develop voluntary
technical standards known as standard development organizations
or SDOs. The standards developed by these organizations play an
essential role in enhancing public safety, facilitating market
access and promoting trade and innovation. Yet despite these
procompetitive effects, SDOs can find themselves named as
defendants in suits between business competitors alleging
violations of the antitrust laws. Once they are sued, these
organizations are forced to expend considerable resources on
protracted discovery proceedings before they are finally able
to prevail on motions to dismiss.
The bill, like the NCRA before it, takes a moderate
approach toward addressing this problem. It does not create a
statutory exemption, as Mr. Forbes indicated, or defer immunity
from the operation of the antitrust laws. It merely detrebles,
if you will, antitrust damages in cases where accurate
predisclosure of collaborative activities has been made to the
Department of Justice. I would submit that this is the right
approach. Congress should allow the antitrust laws to operate
as they were meant to without creating special exemptions and
carveouts for particular industries.
This bill does not create an exemption for SDOs; instead,
it grants them limited relief in the same type and same manner
as the relief provided by the NCRA to certain cooperative joint
ventures. It is a moderate approach. It has worked well.
And again, Mr. Chairman, I thank you for holding this
hearing and I look forward to the testimony of our witnesses. I
would like to at this point in time introduce, to my left, to
the panel, Congresswoman Zoe Lofgren from California. And I
would also, with the indulgence of the Chair, would inquire
from Mr. Meehan if he also wishes to join me in welcoming Mr.
Shannon, in particular, to this hearing.
Mr. Meehan. I thank my colleague. I would like to welcome
Jim Shannon to the Judiciary Committee. Jim Shannon actually
gave me my first job in the Congress as a congressional
staffer. And I would point out to my colleague from
Massachusetts, it wasn't that long ago. In fact, it was 1979.
Just for a little bit of history, in the 96th Congress in
1979, Jim Shannon was the youngest Member of Congress at 26
years old. And Jim also served with distinction as the Attorney
General of the Commonwealth, and during his tenure he took a
leadership role on antitrust issues. He was the Chairman of the
Antitrust Committee of the National Association of Attorneys
General.
So I am delighted to have Mr. Shannon here and look forward
to the testimony.
Mr. Forbes. Any other Members wish to make any other
opening remarks? The Chair recognizes the distinguished Member
from North Carolina, Mr. Coble.
Mr. Coble. Mr. Chairman, I will be very brief. This hearing
has the trappings of a Massachusetts conspiracy. Mr. Shannon,
you sent two good men here in Mr. Delahunt and Mr. Meehan. And
Mr. Chairman, I regret that I have two other hearings
simultaneously being conducted, so I may have to come and go.
But I agree with Mr. Delahunt, I appreciate you and the
Chairman of the full Committee for having formulated this
hearing. I look forward to hearing it while I can be here.
Thank you.
Mr. Forbes. We will take you when we can get you and we
know that it is quality and not quantity. We appreciate the
minutes that we have.
Any other Member? The distinguished Member, from Ohio, Mr.
Chabot.
Mr. Chabot. Mr. Chairman, I wish we had one of our
Republican House Members from Massachusetts who could also
extend our greetings here, but of the 13 Members--I think it is
still 13, they are all Democrats, but at least as one
Republican, my dad was from Massachusetts. He was the one
Republican in his family and he moved out of the State. So we
all welcome you here and look forward to what you have to say.
Mr. Forbes. Any other Members wish to make any other
opening remarks?
Before we begin, I would like to briefly introduce today's
distinguished panel of witnesses. Our first witness is Mr.
James Shannon, the President and Chief Executive Officer of the
National Fire Protection Association. Before assuming this
position, Mr. Shannon was Senior Vice President and General
Counsel for the Association. The National Fire Protection
Association is an international organization which develops
fire safety codes and standards which are adopted by State and
local jurisdictions throughout the United States by the Federal
Government and by governments around the world.
Prior to joining the National Fire Protection Association,
Mr. Shannon served as Attorney General of the Commonwealth of
Massachusetts where he argued several antitrust cases and
testified before this Committee on antitrust legislation.
Mr. Shannon began his political career with his election to
the United States House of Representatives in 1978. He was the
youngest Member of the 96th Congress and served in the House
until 1985. Mr. Shannon received his BA from Johns Hopkins
University and his JD from George Washington University. Mr.
Shannon, thank you for appearing today.
Our second witness is David Karmol who serves as Vice
President for Public Policy and Government Affairs at the
American National Standards Institute, ANSI. In this position,
Mr. Karmol is responsible for advocacy and outreach programs
designed to better educate Federal, State and local government
officials on the role of standard developing organizations and
promoting the competiveness of U.S. Businesses and enhancing
public health and safety. ANSI is a nonprofit organization that
has administered and coordinated the U.S. private sector
voluntary standardization system for more than 80 years.
Prior to joining ANSI, Mr. Karmol spent 10 years as General
Counsel and Director of Public Affairs at the National Spa and
Pool Institute. Mr. Karmol is no stranger to this setting,
having served as counsel to the Judiciary Committee from 1979
to 1983. Mr. Karmol also served in the Ohio House of
Representatives. Mr. Karmol received his BA from Miami
University of Ohio and his JD from the Ohio State University
College of law. Mr. Karmol, welcome back to the Committee.
Our final witness is Earl Everett, the Director of Safety
Engineering for the Georgia State Department of Labor. In his
present capacity, Mr. Everett oversees the enforcement of a
variety of codes and standards that promote public health and
safety.
Prior to joining the Georgia Department of Labor, Mr.
Everett was the Assistant Regional Manager in the Southeast for
Hartford Steam Boiler Inspection and Insurance Company. Mr.
Everett holds a business administration degree from Orlando
College in Florida, and served in the United States Navy from
1962 until 1974. Mr. Everett, thank you for appearing before
the Committee to provide a State perspective upon this
legislation.
And before recognizing our first witness, I don't believe
there are any other Members that have joined us. Any other
Members wish to make any opening remarks?
Mr. Forbes. If not, we will turn to our first witness, Mr.
Shannon and we look forward to your remarks.
STATEMENT OF THE HONORABLE JAMES M. SHANNON, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, NATIONAL FIRE PROTECTION ASSOCIATION
Mr. Shannon. I am honored to appear before this Committee
again. I am Jim Shannon. I am President and Chief Executive
Officer of NFPA. NFPA is an international organization that
develops voluntary consensus codes and standards that are
adopted by State and local jurisdictions throughout the United
States and are widely used by the Federal Government and other
governments around the world. As you indicated, before joining
NFPA, I served as Attorney General of the Commonwealth of
Massachusetts and was involved in antitrust matters with the
National Association of Attorneys General where I had the honor
to testify before this Committee on antitrust matters, and I
served in the House of Representatives for three terms prior to
that. As a public official, I sought to understand and improve
and enforce the antitrust laws to further the goals of enhanced
competition.
And the bill I am here to support today, the Standards
Development Organization Advancement Act of 2003, will help
standards developers continue their important work on behalf of
all of our citizens while reaffirming the central role of our
antitrust statutes in a free market economy.
Let me take a minute if I might to describe NFPA, to give
you a sense of the organizations that are covered by this
proposal and why it is in the public interest to adopt the
legislation. NFPA was founded over 100 years ago and has as its
mission the protection of lives and property from fire and
related hazards. This mission is accomplished principally
through the development of nearly 300 codes and standards in a
consensus process under rules sanctioned by the American
National Standards Institute. These codes include the National
Electrical Code, which is used in just about every jurisdiction
in America; the National Fire Codes; and the Life Safety Code,
which under law must be used in health care facilities that
receive Medicare and Medicaid reimbursement.
Our rules require that standards be developed using
procedures that ensure due process, openness, fairness and the
participation of materially affected interests. Our technical
committees that draft and update our codes are balanced to
ensure that no single group of interested persons can dominate
the process. Decisions are reached by consensus after
consideration of all of the technical arguments. And in our
system, any party who disagrees with a decision may file an
appeal and receive a hearing before a standard or code is
issued.
The wide acceptance of NFPA codes and standards and codes
and standards of similar nonprofit organizations is testament
to the benefits provided by these activities. The legislation
before you today is necessary, because standards development by
its nature places competitors or potential competitors in a
position where they may carry their competition into a
standards development process. If one of these actors believes
that its position in the market has been unfairly hindered by a
particular standards decision, it may sue its competitor who
has advocated that decision, alleging violations of the
antitrust laws, and in many cases will sue the standard
development organization. This happens even though the standard
development organization is a nonprofit organization with no
profit or other motive to violate the antitrust laws.
Because of the complexity of the antitrust laws and the
continuing uncertainty of their potential application to
standard development organizations, the prospect is that
standards developers will continue to be named as pattern
defendants in antitrust cases alleging anticompetitive conduct
of business competitors carried out in the standard development
context.
NFPA, for example, has been named in several antitrust
suits that have arisen in this way. When we met with
individuals from the Justice Department, there was one person
who had been there for some length of time and he said, gee, in
all my years, you are the first organization that has come
looking for relief from the antitrust laws who has actually
been sued--which I thought was a signal honor for us. It has
never been found, however, liable for any antitrust violation.
These suits, however, are very costly and disruptive to
defend, even when the court dismisses the standard development
organization's defendant. And merely the threat of substantial
treble damages severely restrains the operations of nonprofit
organizations that develop codes and standards.
Now, while I believe that a compelling case can be made for
full antitrust immunity for nonprofit standard development
organizations, the relief that we are seeking today is far more
moderate and similar to an approach adopted by this Committee
when it wrote the 1984 National Cooperative Research Act and
amended that act in 1993. In those instances, the Committee
adopted an approach whereby procompetitive joint venture
activity could be predisclosed to antitrust agencies. In return
for such disclosure, the parties received not immunity but
detrebled actual damages, provided that their subsequent
conduct stays within the bounds of their disclosure to the
Department of Justice.
The NCRA, I think, has been a great success, allowing
cooperation to bring about technical innovation without
sacrificing the procompetitive protection of antitrust law.
This proposed legislation would simply amend the existing
statute to allow SDOs to use the very same predisclosure system
that is now used for R&D ventures and production joint
ventures. Thus the bill would leave the statutory scheme in
place and simply include properly disclosed standards
development activity as being eligible for the protections
established by the NCRA.
As in 1984 and again in 1993, the proposed bill would
ensure that the definition of standard setting would never
include any of the per se offenses like price fixing, boycott,
or dividing territories. In order to qualify for this
treatment, the SDO would have to follow the open, voluntary,
and nonexclusionary principles embodied in the OMB circular.
And the protections provided in the act would apply only to
activities that had been disclosed in advance to the Department
of Justice and not to other activities of the standard
development organizations.
These changes in the law would not mean that standard
development organizations could never be joined as a defendant
in an antitrust suit involving standard development activities.
These changes would mean the potential antitrust plaintiffs
would be on notice that to the extent that a standard
development organization stayed within the bounds of its
predisclosure to the antitrust reviewing agency, it would be
subject only to actual and not treble damages.
Mr. Chairman, Members of this Committee, in summary, the
Standards Development Organization Advancement Act of 2003 is
an act that alleviates what has become a significant problem
for the nonprofit organizations that develop codes and
standards that provide protection for the health and safety of
American workers and our whole citizenry. The procedures
embodied in the act have proven to be very successful with
regard to cooperation, research, and development as allowed in
the NCRA. Just as with that act, this legislation will remove a
growing obstacle to activity that is clearly in the public
interest, while leaving intact the important protection
provided by strong antitrust laws, laws that I have long fought
to protect. Thank you.
Mr. Forbes. Thank you for your testimony.
[The prepared statement of Mr. Shannon follows:]
Prepared Statement of the Honorable James M. Shannon
Mr. Chairman, ranking Member Conyers and Members of the Committee,
I am honored to appear before this Committee again. I am James M.
Shannon and I am President and Chief Executive Officer of NFPA (the
National Fire Protection Association). NFPA is an international
organization that develops voluntary consensus codes and standards that
are adopted by state and local jurisdictions throughout the United
States and are widely used by the federal government and other
governments around the world. Before joining NFPA I served as Attorney
General of the Commonwealth of Massachusetts from 1987 to 1991 and I
was Chairman of the Antitrust Committee of the National Association of
Attorneys General. In that capacity, I appeared before this committee
to testify on antitrust matters. Before that I had the great honor of
representing the Fifth Congressional District of Massachusetts as a
member of this body from 1979 to 1985 and served on the Ways and Means
Committee.
As a public official I sought to understand, improve, and enforce
the antitrust laws to further the goals of enhanced competition. The
bill that I am here to support today, the Standards Development
Organization Advancement Act of 2003, will help standards developers
continue their important work on behalf of all of our citizens while
reaffirming the central role of our competition statutes in a free-
market economy.
Let me take a minute to describe NFPA to give you a sense of the
organizations that are covered by this proposal and why it is in the
public interest to adopt this legislation.
NFPA was founded over one hundred years ago and has as its mission
the protection of lives and property from fire and related hazards.
This mission is accomplished principally through the development of
nearly 300 codes and standards in a consensus process under rules
sanctioned by the American National Standards Institute. These codes
include the National Electrical Code, which is used in just about every
jurisdiction in America, the National Fire Codes and the Life Safety
Code which, under law, must be used in healthcare facilities that
receive Medicare and Medicaid reimbursement.
Our rules require that standards be developed using procedures that
ensure due process, openness, fairness and the participation of all
materially affected interests. Our technical committees that draft and
update our codes are balanced to ensure that no single group of
interested persons can dominate the process. Decisions are reached by
consensus after consideration of all the technical arguments. In our
system, any party who disagrees with a decision may file an appeal and
receive a hearing before a standard or code is issued. The wide
acceptance of NFPA codes and standards and codes and standards of
similar nonprofit organizations is testament to the benefits provided
by these activities.
What is unique about the United States standardization process is
that these activities, so vital to our citizens, are conducted by
private organizations, not governmental agencies, but with broad
participation, acceptance and support by public authorities. In fact,
it has been federal policy since at least the Reagan Administration
both through OMB Circular A-119 and more recently (in 1996) with the
adoption of the National Technology Transfer and Advancement Act
(NTTAA) to require the use of voluntary consensus standards to the
extent possible in all procurement and regulatory activities.
The legislation before you today is necessary because standards
development, by its nature, places competitors or potential competitors
in a position where they may carry their competition into a standards
development process. If one of these actors believes that its position
in the market has been unfairly hindered by a particular standards
decision, it may sue its competitor who has advocated that decision,
alleging violations of the antitrust laws and in many cases will sue
the standards development organization as well. This happens even
though the standards development organization is a nonprofit
organization with no profit or other motive to violate the antitrust
laws. Because of the complexity of the antitrust laws and the
continuing uncertainty of their potential application to standards
development organizations, the prospect is that standards developers
will continue to be named as pattern defendants in antitrust cases
alleging anticompetitive conduct of business competitors carried out in
the standards development context.
NFPA, for example, has been named in several antitrust suits that
have arisen in this way. It has never been found liable for any
antitrust violation. These suits, however, are very costly and
disruptive to defend even when the court dismisses the standards
development organization defendant, and, merely the threat of
substantial treble damages severely restrains the operations of a
nonprofit organization that develops codes and standards.
While I believe that a compelling case can be made for full
antitrust immunity for nonprofit standards development organizations,
the relief we are seeking today is far more moderate and similar to an
approach adopted by this committee when it wrote the 1984 National
Cooperative Research Act (NCRA) and amended that act in 1993. In those
instances, this committee adopted an approach whereby procompetitive
joint venture activity could be predisclosed to the antitrust agencies.
In return for such disclosure, the parties receive not immunity but
``detrebled'' damages (actual damages), provided that their subsequent
conduct stays within the bounds of their disclosure to the Department
of Justice.
The NCRA has been a great success allowing cooperation to bring
about technical innovation without sacrificing the procompetitive
protection of antitrust law. With regard to the R&D activities covered
by that Act, a balanced approach of not granting immunity but
establishing a voluntary and transparent predisclosure process in
return for reduced liability was in the best interests of both
innovation and safeguarding competition. The same approach for
standards development will provide similar benefits for the public.
The proposed legislation would simply amend the existing statute to
allow SDO's to use the very same predisclosure system as now used for
R&D joint ventures and production joint ventures. Thus, the bill would
leave the statutory scheme in place and simply include properly
disclosed standards development activity as being eligible for the
protections established by the NCRA. As in 1984 and again in 1993, the
proposed bill would ensure that the definition of ``standards setting''
would never include any of the per se offenses, like price fixing,
boycott or dividing territories. In order to qualify for this treatment
the SDO would have to follow the open, voluntary and non-exclusionary
principles embodied in the OMB circular. The protections provided in
the Act would apply only to activities that had been disclosed in
advance to the Department of Justice, and not to other activities of
the standards development organizations.
These changes in law would not mean that standards development
organizations could never be joined as a defendant in an antitrust suit
involving standards development activities. These changes would mean
that potential antitrust plaintiffs would be on notice that, to the
extent that a standards developing organization stayed within the
bounds of its pre-disclosure to the antitrust reviewing agency, it
would be subject only to actual, not treble damage. In addition, under
the proposed legislation, joinder of an SDO in an antitrust suit along
with the actual business competitors could no longer be done lightly.
As with the National Cooperative Research Act, this legislation
provides for court awarded costs and attorneys fees where an Act-
compliant SDO is sued unreasonably or in bad faith.
Mr. Chairman and Members of the Committee, in summary, the
Standards Development Organization Advancement Act of 2003, is an act
that alleviates what has become a significant problem for the nonprofit
organizations that develop the codes and standards that provide
protection for the health and safety of American workers and our whole
citizenry. The procedures embodied in the Act have proven to be very
successful with regard to cooperation in research and development as
allowed in the National Cooperative Research Act. Just as with that Act
this legislation will remove a growing obstacle to activity that is
clearly in the public interest while leaving intact the important
protection provided by strong antitrust laws.
Thank you.
Mr. Forbes. And Mr. Karmol, we look forward to your
comments.
STATEMENT OF DAVID KARMOL, VICE PRESIDENT OF PUBLIC POLICY AND
GOVERNMENT AFFAIRS, AMERICAN NATIONAL STANDARDS INSTITUTE
Mr. Karmol. Thank you, Mr. Chairman, Members of the
Committee. My name is Dave Karmol. I am the Vice President of
Public Policy and Government Affairs for the American National
Standards Institute, also known as ANSI.
I am honored to join the two gentlemen at the table this
morning who represent two ANSI-accredited standards developers,
NFPA and ASME. These two groups are respected around the world,
and the work they do is a large part of the reason this Nation
is as safe a place as it is to live, work, and play.
Voluntary consensus standards produced by the hundreds of
groups this bill would benefit are documents intended to
improve the utility and safety of products and services,
stimulate competition for products by facilitating
interchangeability and interoperability, and enhance
international trade. Use of a standard offers a benchmark of
basic product characteristics which allows buyers to compare
products.
The voluntary standardization system in the United States
is the most effective and efficient in the world. For almost
100 years, this system has been administered and coordinated by
ANSI, a private 501(c)(3) organization with the cooperation of
Federal, State and local governments. ANSI itself does not
write standards, but accredits nearly 300 standard development
organizations, SDOs, who have together developed over 11,000
American national standards. ANSI determines whether the
standards developed by these groups meet the criteria to be
approved as American national standards. ANSI's approval of
these standards verifies that the principles of openness and
due process have been followed. American national standards
provide dimensions, ratings, terminology and symbols, test
methods, interoperability criteria and performance and safety
requirements for everything from children's toys to nuclear
reactor vessels.
Today, standards development continues in such critical
areas as health care, the environment, and homeland security.
In the conformity assessment area--that is, measuring
compliance with standards--ANSI accredits 36 organizations that
certify products meet standards. ANSI is also involved in the
process of accrediting organizations that register quality
systems conforming to ISO 9000 and ISO 14000 series of
standards.
As you may know, ANSI was created in 1918 as a joint effort
by the Departments of War, Navy, and Commerce and several
standards developers. More recently, when Congress enacted the
National Technology Transfer and Advancement Act of 1995, it
specifically encouraged the participation of the Federal
Government in the development of voluntary standards. It was
the clear intent of Congress that Federal employees play an
active role in the development of standards to be used in
regulation, procurement, and trade.
Other recent legislation gives evidence of the intent of
Congress that Federal agencies should use voluntary standards
whenever possible. That includes the Consumer Product Safety
Act, the Health Insurance Portability and Accountability Act or
HIPPA, the Telecommunications Reform Act of 1996, the FDA
Modernization Act of 1997, and the National Defense
Authorization Act of 2002.
Today, the Department of Defense alone has adopted over
9,000 voluntary standards for procurement purposes, and the use
of these standards helps makes our military the best in the
world. Replacing milspecs with voluntary standards has also
saved taxpayers billions of dollars in procurement costs.
The benefits and procompetitive effects of voluntary
standards are not in dispute. Standards do everything from
solving issues of product compatibility to addressing consumer
safety and health concerns. They also are a fundamental
building block for international trade. As a result of laws
passed by Congress encouraging Government adoption and use of
standards, our community is now performing some functions that
were previously the exclusive province of Government agencies.
As standards developers take on these roles, it makes sense
that they should have some of the exemptions from liability
that the Government has traditionally enjoyed, such as relief
from potentially onerous antitrust liability.
The National Cooperative Research and Production Act
recognized the need to balance the interest and avoiding
anticompetitive conduct with procompetitive results of
cooperative ventures in the areas of research and production.
The NCRPA eliminates the possiblity of treble damages when
participants file their intent with the Justice Department and
the FTC.
H.R. 1086 creates an explicit filing opportunity for SDOs
that mirrors the requirements and restrictions currently placed
on companies filing under existing law. H.R. 1086 recognizes
the new functions SDOs have taken on and recognizes the need
for a filing method that is clearly available to these SDOs.
SDOs and the experts that populate these groups serve an
important public service function in devising voluntary
consensus standards. The entire voluntary consensus standard
system will be hindered in its ability to continue its work if
SDOs are subject to possible antitrust claims and the legal
expenses that such claims entail.
We ask you favorably to consider H.R. 1086. And by acting
on this, Congress will take a step to offer some protection to
the SDOs on which the Government depends for assistance in
devising reasonable regulations and procurement standards that
fulfill Government needs.
ANSI shares this Committee's desire to see that the
antitrust laws protect American citizens and businesses from
illegal practices while at the same time not unduly restricting
the ability of American firms to work together to address the
challenges they face in the global marketplace. We also believe
that along with the responsibilities that have been assumed by
the hundreds of organizations that sponsor the development of
standards, there is a need for some protection from the high
costs of defending against this type of litigation.
This legislation strikes a good balance and provides some
recognition of the contribution that standards developing
organizations make to American society and our economy and
increasingly as partners with the Federal Government.
We thank you for the opportunity to testify. And I would be
very happy to answer questions.
Mr. Forbes. Thank you, Mr. Karmol.
[The prepared statement of Mr. Karmol follows:]
Prepared Statement of David L. Karmol
Good morning, Mr. Chairman and members of the Committee. My name is
David Karmol and I am the Vice President of Public Policy and
Government Affairs at the American National Standards Institute,
usually referred to as ANSI.
It is with great pleasure that I appear before you today to discuss
the merits of H.R. 1086, a bill ``to encourage the development and
promulgation of voluntary consensus standards . . . by providing relief
under the antitrust laws to standards development organizations''
(SDOs). Voluntary consensus standards are documents intended to improve
the utility and safety of products and services, stimulate competition
for products by facilitating interchangeability and interoperability,
and enhancing international trade. Standards that are approved as
American National Standards are created by accredited organizations
that focus on reaching consensus among all affected stakeholder groups
that may include industry, government, organizations, consumers/labor
interests, and other experts. These standards provide technical
guidance on the production and operation of a wide array of materials,
products, and services across a multitude of industry sectors.
Beyond their use as a means of enhancing consumer safety, standards
provide a method for creating products that are interoperable in spite
of being manufactured by different corporations. Wide acceptance of a
standard offers a benchmark of basic product characteristics, which
allows consumers to compare products. This not only benefits large
corporations, but also small businesses that are able to market
products that can be independently certified as having equivalent
functionality, safety characteristics or other common factors.
ansi's role
The voluntary standardization system in the United States is the
most effective and efficient in the world. For almost 100 years, this
system has been administered and coordinated by the private sector
through ANSI, with the cooperation of federal, state and local
governments. ANSI does not write standards; it serves as a catalyst for
standards development by its diverse membership. The Institute is a
unique partnership of industry; professional, technical, trade, labor,
academic and consumer organizations; and some 30 government agencies.
These members of the ANSI federation actually develop standards or
otherwise participate in their development, contributing their time and
expertise in order to make the system work.
ANSI accredits various standards developers to develop American
National Standards. Thousands of individuals from companies,
organizations (such as labor, consumer and industrial groups),
academia, and government agencies voluntarily participate and
contribute their knowledge, talent and efforts to the standards
development process.
ANSI determines whether standards developed by ANSI-accredited
standards developers meet the necessary criteria to be approved as
American National Standards. ANSI's approval of these standards is
intended to verify that the principles of openness and due process have
been followed and that a consensus of all interested parties has been
reached. In addition, ANSI considers any evidence that the proposed
American National Standard is contrary to the public interest, contains
unfair provisions or is unsuitable for national use.
The voluntary consensus standards development process has proven
its effectiveness across a diverse set of industries and in federal,
state and local government processes. These industries include
telecommunications, safety and health, information technology,
petroleum, banking and household appliances. There are now
approximately 11,000 ANSI-approved American National Standards that
provide dimensions, ratings, terminology and symbols, test methods,
interoperability criteria, and performance and safety requirements.
These efforts continue today and are being applied to new critical
areas such as the environment and healthcare.
ANSI also is the United States representative to the two major,
non-treaty international standards organizations: The International
Organization for Standardization (ISO) and, through the United States
National Committee, the International Electrotechnical Commission
(IEC). In the conformity assessment area, ANSI accredits organizations
that certify that products meet certain standards. In addition, through
a joint program, ANSI and the Registrar Accreditation Board (RAB)
accredit organizations that register quality systems conforming to the
ISO 9000 and ISO 14000 series of standards.
In fulfilling its roles and responsibilities, ANSI continues to
pursue its mission to ``[e]nhance both the global competitiveness of
U.S. business and the U.S. quality of life by promoting and
facilitating voluntary consensus standards and conformity assessment
systems and safeguarding their integrity.'' In summary, ANSI ensures
the integrity of the U.S. voluntary consensus standardization system by
serving as (1) an open, national forum for standards-related policy
issues, (2) the only accreditor of standards developers, ISO Technical
Advisory Groups (TAGs) and certain certification programs, and (3) a
primary source of information and education on standards and conformity
assessment issues.
ansi processes and procedures \1\
---------------------------------------------------------------------------
\1\ The ANSI procedural requirements for accrediting standards
developers and for designating American National Standards are
available on ANSI Online at
---------------------------------------------------------------------------
As the only accreditor of U.S. standards developing organizations,
ANSI ensures the integrity of the voluntary consensus standards
development process and determines whether standards meet the necessary
criteria to be approved as American National Standards. The goal of the
ANSI process is to obtain a document that a balanced consensus of
materially affected interest groups believes is an appropriate
standard. Due process is critical when it comes to determining if that
consensus has been fairly achieved. Accordingly, ANSI requires that a
draft proposed standard be appropriately circulated (both to the
consensus body and the public at large) and that an attempt is made to
resolve all negative comments. There must be an appeals process. If a
balanced consensus body then votes on and approves the proposed
document after reviewing all unresolved negative comments and any
substantive changes to the text, consensus has been achieved and due
process has been satisfied. This basic formula has been the hallmark of
the ANSI process for decades, and it has earned widespread respect and
acceptance.
If a standard is developed according to ANSI requirements, there
should be sufficient evidence that the standard has a substantive
reasonable basis for its existence and that it meets the needs of
producers, users and other interest groups. If a vote on a standard was
or is somehow perceived as having been subtlety manipulated, any person
or entity who is materially affected by or otherwise interested in the
standard--whether a voting member of the consensus body or a public
commentator--can appeal the decision. The grounds for an appeal to ANSI
include issues such as lack of balance on the consensus body, dominance
by any person or entity, inadequate response to a negative comment
(again whether from a voting member of the committee or a public
commentator), and improper restraint of trade concerns. The appeals
process, and the requirement that all consensus bodies seek to have
representatives from a balanced group of stakeholder interests, assures
that no one interest can manipulate the process unfairly. The ANSI
system is designed so that contrary evidence proffered by opponents of
the standard must be properly addressed and responded to or else the
standard will fail to achieve ultimate approval.
In addition, proper procedures are of little value if they are not
followed in practice. As a result, in addition to the review ANSI
undertakes when a standard is submitted to it for approval as an
American National Standard, the Institute also has implemented a
mandatory standards developer audit program. The program is designed
both to verify an accredited developer's compliance with current ANSI
requirements and to provide guidance on more efficient or effective
ways to address various aspects of the standards development process.
While all American National Standards must be developed in
accordance with these basic hallmarks of the ANSI process, accredited
developers may satisfy these requirements in innovative ways and rely
extensively on electronic communications. If there is a ready consensus
by the interested parties on a proposed standard, the standard can meet
the procedural requirements for, and be approved as, an American
National Standard in a matter of months.
ANSI recognizes that there are many ways to develop standards, and
that in many instances other methods and the resulting standards are
entirely appropriate for the targeted user community. ANSI has no
objection whatsoever to the existence of organizations that develop
standards outside the so-called ``formal'' process used within the ANSI
community. ANSI has never had--nor has it ever sought--exclusivity in
promulgating a standards development process.
the public-private partnership
While the term ``public-private partnership'' has been in vogue in
Washington in recent years, it has been a reality for ANSI since our
creation. In fact, ANSI was founded in 1918 by a group of private
sector organizations and government agencies that recognized the need
to have a forum in which they could address common concerns. As a
private sector organization with many government members, ANSI has a
strong tradition of working cooperatively with government as well as
industry, organizations, and consumer interests.
ANSI is a private sector organization in which many government
representatives are active at all levels, from our Board of Directors
to the committees that promulgate, maintain and implement the
procedures pursuant to which standards developers are accredited and
American National Standards are developed and approved. Government
representatives participate in ANSI delegations addressing
international standardization issues, thereby strengthening the U.S.
voice in international standardization negotiations.
When Congress enacted the National Technology Transfer and
Advancement Act of 1995 (NTTAA),\2\ it specifically and strongly
encouraged the participation of the U.S. government in the development
of voluntary consensus standards. It was the clear intent of Congress
that federal employees play an active role in the development of
standards that will be used in regulation, procurement, and trade. This
action by the Congress confirmed a basic principle of the U.S.
standardization system--that standards-setting is a partnership process
in which government and the private sector are equal partners. The
importance of the private-public partnership was reaffirmed in a series
of laws enacted by Congress in recent years, including these:
---------------------------------------------------------------------------
\2\ Op.cit.
---------------------------------------------------------------------------
Consumer Product Safety Improvement Act of 1990
The National Technology Transfer and Advancement Act
of 1995 (P.L. 104-113)
Health Insurance Portability and Accountability Act
of 1995
Telecommunications Reform Act of 1996
FDA Modernization Act of 1997
Each of these laws reinforced the principle that the Federal
government should rely heavily upon private sector standards, and that
the government should participate actively in the development of those
standards.
The U.S. is an example to the rest of the world on how the public
and private sectors can work cooperatively. Using voluntary standards
allows the government to achieve economies of scale and have access to
the most modern technologies and a wide range of technical experts. If
federal participation in standards development were curtailed, over
time these benefits might be lost to the federal government-costs would
go up and the advantages of government use of products meeting
consensus standards would be lost. While the private sector would
suffer the loss of the expertise of often uniquely knowledgeable
government experts, the government would lose the benefit of critical,
timely access to private sector expertise and standards.
In an era of constant technological change, we cannot afford to
sacrifice our economic advantage because of laws that stifle
development of standards that provide many pro-competitive benefits.
the standards developing organization act and the u.s. economy
The benefits and pro-competitive effects of voluntary standards are
not in dispute. Standards do everything from solving issues of product
compatibility to addressing consumer safety and health concerns.
Standards also allow for the systemic elimination of non-value-added
product differences (thereby increasing a user's ability to compare
competing products), provide for interoperability, improve quality,
reduce costs and often simplify product development. They also are a
fundamental building block for international trade. As the U.S. Court
of Appeals for the First Circuit explained:
The joint specification, development, promulgation, and
adoption efforts would seem less expensive than having each
member of CISPI [a trade association] make duplicative efforts.
On its face, the joint development and promulgation of the
specification would seem to save money by providing information
to makers and to buyers less expensively and more effectively
than without the standard. It may also help to assure product
quality. If such activity, in and of itself, were to hurt
Clamp-All by making it more difficult for Clamp-All to compete,
Clamp-All would suffer injury only as result of the defendants'
joint efforts having lowered information costs or created a
better product. . . . And, that kind of harm is not
``unreasonably anticompetitive.'' It brings about the very
benefits that the antitrust laws seek to promote.\3\
---------------------------------------------------------------------------
\3\ Clamp-All Corp. v. Cast Iron Soil Pipe Institute, 851 F.2d 478,
487 (1st Cir. 1988) (Breyer, C.J.) (citation omitted; emphasis in
original), cert. denied, 488 U.S. 1007 (1989).
As a result of the increasing number of laws passed by the Congress
since the early 1990's mandating government adoption and use of
standards, and participation in private standards development, the
standards community actually is performing some critical development
functions that were previously the exclusive province of government
agencies. As standards developers take on the role of government in
formulating consensus standards, they arguably deserve some of the
exemptions from liability that the government has traditionally
enjoyed, such as relief from potentially onerous antitrust liability
exposure.
The National Cooperative Research and Production Act of 1993
recognized the need to balance the governmental interest in avoiding
anti-competitive conduct with the efficiency and pro-competitive
results of certain types of cooperative ventures in the areas of
research and production. H.R. 1086 creates an explicit filing
opportunity for SDOs which mirrors the requirements and restrictions
currently placed on organizations and companies filing under the
existing law.
SDOs--and the experts that populate these groups--serve an
important public interest function in devising voluntary consensus
standards. The public interest is both served and protected if the
standards developer is adhering to the hallmarks of the ANSI process:
Openness, balance, consensus, public notice and review, opportunity to
appeal, and other due process safeguards. The entire voluntary
consensus standards system will be severely hindered in its ability to
continue its valuable work if SDOs are subjected to possible antitrust
claims and forced to incur substantial legal and other costs in their
defense.
We ask that you favorably consider H.R. 1086, by which Congress
will take a step to offer some protection to the SDOs on which the
government depends for assistance in devising reasonable regulations
and procurement standards that fulfill government needs.
conclusion
ANSI shares this Committee's desire to see that the antitrust laws
continue to protect American citizens and businesses from harmful anti-
competitive practices, while at the same time not unduly restricting
the ability of American firms to work together to address the common
challenges they face in the global marketplace. We also believe that
along with the responsibilities that have been assumed by the hundreds
of organizations that sponsor the development of standards, there is a
need for some protection from the high costs of defending against
litigation. This legislation strikes a good balance, and provides some
recognition of the contribution that standards developing organizations
make to the American society and economy, and increasingly, as partners
with the Federal Government.
We want to work with you to promote the development of quality
standards that serve all our citizens.
Thank you for this opportunity to testify. I would be very happy to
answer any questions you might have.
Mr. Forbes. Mr. Everett, looking forward to your comments.
STATEMENT OF EARL EVERETT, DIRECTOR, DEPARTMENT OF LABOR,
DIVISION OF SAFETY ENGINEERING, STATE OF GEORGIA
Mr. Everett. Thank you, Mr. Chairman, and Members of the
Committee. Thanks for allowing me to be here with you today. My
name is Earl Everett, and as Director of the Safety Engineering
Division within the Georgia Department of Labor, I have
responsibility for administration and enforcement of various
codes and standards accepted by the State of Georgia. Some of
the most notable standards are those developed by the American
Society of Mechanical Engineers, National Fire Protection
Association, American Society of Testing Materials, American
Society of Safety Engineer, and the National Board Inspection
Code.
Codes of these standard developing organizations are
generally accepted as proper and effective guidelines in
determining safety and quality of various products. For
example, the ASME Boiler and Pressure Vessel Code and the
National Board Inspection Code have been proven to be effective
in ensuring the safety of our citizens. And since their
inception in the early 1900's, these standards have been
adopted by 49 States. They are developed by over 800 volunteer
members, representing all segments of the boiler and pressure
vessel industry, including manufacturers, users, and
enforcement authorities. These codes are continuously reviewed
to ensure that the latest materials and technology are
incorporated. And without the consensus standards being
available for State and local governments, there would be no
uniformity or reciprocity among the States. Products
manufactured in one State may not meet the standards of another
State. If State and local governments tried to develop and
promulgate independent standard, there would be so many outside
influences it would be virtually impossible to arrive at an
acceptable consensus. State and local governments also do not
have the expertise or the resources to expend the development
of any standards.
The importance of these standards and the volunteers who
develop them cannot be overstated. They touch our lives and the
lives of our family and friends and everything that we do. We
are so dependent on standards that we are able to take safety,
convenience, comfort, and longevity for granted. Somewhere
right now, some highly trained and experienced person is
volunteering his or her time to make this a better and safer
place for all to live.
Mr. Chairman, I appreciate the opportunity to be of service
and would welcome any questions.
Mr. Forbes. Thank you, Mr. Everett.
[The prepared statement of Mr. Everett follows:]
Prepared Statement of Earl Everett
GOOD MORNING MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE. MY NAME IS
EARL EVERETT. AS DIRECTOR OF SAFETY ENGINEERING WITHIN THE GEORGIA
DEPARTMENT OF LABOR, I HAVE RESPONSIBILITY FOR ADMINISTRATION AND
ENFORCEMENT OF VARIOUS CODES AND STANDARDS ACCEPTED BY THE STATE OF
GEORGIA. SOME OF THE MOST NOTABLE STANDARDS ARE THOSE DEVELOPED BY THE
AMERICAN SOCIETY OF MECHANICAL ENGINEERS (ASME), NATIONAL FIRE
PROTECTION ASSOCIATION (NFPA), AMERICAN SOCIETY OF TESTING MATERIALS
(ASTM), AMERICAN SOCIETY OF SAFETY ENGINEERS (ASSE) AND THE NATIONAL
BOARD INSPECTION CODE (NBIC). CODES OF THESE STANDARD-DEVELOPING
ORGANIZATIONS ARE GENERALLY ACCEPTED AS PROPER AND EFFECTIVE GUIDELINES
IN DETERMINING SAFETY AND QUALITY OF VARIOUS PRODUCTS. FOR EXAMPLE: THE
ASME BOILER AND PRESSURE VESSEL CODE AND THE NBIC, HAVE BEEN PROVEN TO
BE EFFECTIVE IN ASSURING THE SAFETY OF OUR CITIZENS. SINCE THEIR
INCEPTION IN THE EARLY 1900'S, THESE STANDARDS HAVE BEEN ADOPTED BY 49
STATES. THEY ARE DEVELOPED BY OVER 800 VOLUNTEER MEMBERS REPRESENTING
ALL SEGMENTS OF THE BOILER AND PRESSURE VESSEL INDUSTRY, INCLUDING
MANUFACTURERS, USERS AND ENFORCEMENT AUTHORITIES. THESE CODES ARE
CONTINUOUSLY REVIEWED TO ENSURE THAT THE LATEST MATERIALS AND
TECHNOLOGY ARE INCORPORATED. WITHOUT THE CONSENSUS STANDARDS BEING
AVAILABLE FOR STATE AND LOCAL GOVERNMENTS, THERE WOULD BE NO UNIFORMITY
OR RECIPROCITY AMONG THE STATES. PRODUCTS MANUFACTURED IN ONE STATE MAY
NOT MEET THE STANDARDS OF ANOTHER STATE. IF STATE AND LOCAL GOVERNMENTS
TRIED TO DEVELOP AND PROMULGATE INDEPENDENT STANDARDS, THERE WOULD BE
SO MANY OUTSIDE INFLUENCES, IT WOULD BE VIRTUALLY IMPOSSIBLE TO ARRIVE
AT AN ACCEPTABLE CONSENSUS. STATE AND LOCAL GOVERNMENTS DO NOT HAVE THE
EXPERTISE OR RESOURCES TO EXPEND IN DEVELOPMENT OF ANY STANDARDS.
THE IMPORTANCE OF THESE STANDARDS AND THE VOLUNTEERS WHO DEVELOPED
THEM CANNOT BE OVERSTATED. THEY TOUCH OUR LIVES AND THE LIVES OF OUR
FAMILIES AND FRIENDS IN EVERYTHING WE DO. WE ARE SO DEPENDENT ON
STANDARDS THAT WE ARE ABLE TO TAKE SAFETY, CONVENIENCE, COMFORT AND
LONGEVITY FOR GRANTED. SOMEWHERE, RIGHT NOW, SOME HIGHLY TRAINED AND
EXPERIENCED PERSON IS VOLUNTEERING HIS OR HER TIME TO MAKE THIS A
BETTER AND SAFER PLACE FOR US ALL TO LIVE.
MR. CHAIRMAN, I APPRECIATE THE OPPORTUNITY TO BE OF SERVICE AND
WELCOME ANY QUESTIONS.
Mr. Forbes. And I would like to recognize myself for 5
minutes for a couple of questions.
First of all, Mr. Shannon, I know you have had a lot of
experience with antitrust laws. And two things if you could
elaborate on for clarification for the Committee. First of all,
you mentioned in your written testimony the concept of pattern
defendants. Could you just describe for us what a pattern
defendant is, and, along with that, if you could describe for
us the rule of reason standards so we are clear on that.
Mr. Shannon. Mr. Chairman, thank you. I appreciate those
questions because I think that some people--I think some people
have some difficulty understanding why this is of concern to
us. But I got to tell you it is a real concern to us because
there has been over the last generation some movement toward--
in the standards area toward trying to broaden and bring in
more standards developers whenever antitrust litigation is
contemplated.
We operate under the theory in private standards
development that the best standards that protect the public are
going to be developed if we have the people who are the most
familiar with the topic at the table. And so with NFPA, for
instance, while we operate under the ANSI rules that require
balance with regard to our standards development activities, we
want to have anybody who has got an interest, including an
economic interest. That means if we are developing a fire
standard, we want to have the fire service people there, we
want representatives of firefighters, the fire chiefs and
enforcement agencies. But if it is an area that involves
sprinklers, for instance, or it involves some other type of
fire equipment, we want to have the manufacturers there, we
want to have the installers there. And we think by getting all
of those people around the table that we are going to have the
best decisions made.
And the rules that ANSI requires us to follow require that
no group can dominate. And so we operate under that philosophy.
I think it is a philosophy that the Federal and State
governments have recognized for a long time that produces
quality standards. It does bring competitors to the same table.
And as I said in my testimony, from time to time, we will have
somebody who will say, well, the way you wrote that standard
kept us out of the marketplace, and they will sue one of their
competitors who might be involved in the standards development,
a manufacturer for instance. When they bring that lawsuit
alleging antitrust activity, they oftentimes now will, just as
a matter of course, throw in as a defendant the standard
development organization, which is a nonprofit organization,
which has no interest in the marketplace.
We are not a market actor at all. We have no economic
incentive to assist in antitrust--to assist in any kind of
antitrust conspiracy, and yet we get thrown in just because as
part of the litigation they try to throw in everybody.
Sometimes ANSI will be named as a defendant in the lawsuit
as well. We write 300 standards and we have 7,000 people
sitting on our technical committees. We do a pretty good job of
policing that system. But unfortunately, we do get named in
these suits and we almost always get dismissed pretty early.
But before we get dismissed, we have expended hundreds of
thousands of dollars, and it is extremely disruptive to our
process. And that is what I mean by that.
And so we are looking for some level of protection against
the threat of excessive damages. And the reason we get thrown
in, of course, is because of treble damages. The plaintiffs
will take a shot of naming us just on the theory that the
treble damages are so high that maybe we will throw money into
a settlement. We don't do that.
This activity is accelerating and it is continuing. We are
looking for no protection if there is, in fact, an antitrust
violation, if we in fact assist in one of the per se
violations. But against the normal type of threat we face and
the disruption we face, I think this would provide us a good
deal of relief while denying nobody who has a legitimate claim
the right to make those claims.
Mr. Forbes. Mr. Karmol, has ANSI ever been sued in one of
these cases?
Mr. Karmol. I don't believe we have been named in an
antitrust action. We have been named in several tort liability
type actions.
Mr. Forbes. Yet you are obviously concerned about this. Can
you tell us why, and also give us an idea of the cost of
defending this litigation? Mr. Shannon suggested several
hundred thousand dollars.
Mr. Karmol. I guess I am probably not the right person to
answer that question because I am not our general counsel. I do
know that we have expended well into the hundreds of thousands
of dollars defending litigation just over the past year. And
certainly the concern is that as these--as standards developers
are named, the same situation ensues that Mr. Shannon referred
to. When the attorneys look to name all possible parties, if an
organization is using the ANSI process and is accredited by
ANSI, there is the possibility that they will name ANSI as
well, even though we are another step removed from the process
that Mr. Shannon described. In fact, obviously we accredit
these organizations. We look at their process to make sure it
meets due process requirements, and then we audit their process
at least once every 5 years to make sure that they are in fact
doing what they say they are doing, to make sure that there is
balance, openness, transparency and due process. That really is
our only role. We are not involved in the substance of the
creation of the standard, just maintaining the process.
But there is still the possibility that as attorneys look
for additional pockets to get at, they name ANSI; and that has
happened and we are definitely concerned that it will, because
we have 300 developers like ASME and NFPA that accredit with
some 11,000 American national standards out there.
Mr. Forbes. My time has expired and now I recognize the
gentleman from Massachusetts, Mr. Delahunt for 5 minutes.
Mr. Delahunt. Thank you, Mr. Forbes. Before I--and I just
have a single question. But before I pose that, I would ask
unanimous consent that the statement of the Ranking Member, Mr.
Conyers be included in the record.
Mr. Forbes. Without objection that will be included in the
record.
Mr. Delahunt. Jim, I think what you said should be repeated
in terms of SDOs. There is no anticompetitive motive here. It
just simply doesn't exist. I think for me that really is the
bottom line. But I would also ask if you could give us a real-
life example in terms of litigation where you have been named
in an antitrust suit and allude, if you can, if you know, what
the costs were and what it did in terms of draining the
resources of your particular organization.
Mr. Shannon. Thank you, Mr. Delahunt. If I could, because I
served as general counsel at NFPA prior to becoming president,
we face the threat of it all the time. We get letters from
counsel of people who participate in our process who say if you
don't give us the result we are looking for, we are going to
sue you. That is notwithstanding the fact that we have a
system, and ANSI systems are generally replete with
opportunities to appeal a decision within our process. So if
you are not happy with the technical committee, you take it to
the members' meeting, you take it to our Standards Council, you
can appeal all the way up to our board of directors. If you are
not happy with that, you can appeal it to ANSI. There are lots
of opportunities for people to be heard.
A few years ago, and it is probably maybe 10 years ago now,
one day we were served with a complaint charging that NFPA had
involved itself in an antitrust violation. I had never heard of
the complaint before. Nobody in our system had ever heard of
the complaint before, but there was an individual, I think in
the Atlanta area if I remember correctly, who said he made a
proposal on one of our very technical standards that a method
of calculation that he had developed and, I think, developed
some software for, should be used--having to deal with
hydraulics, and it was a very technical thing. He had never
availed himself of any of the appeals processes within our
system. He had never carried it any further than submitting a
proposal. The committee looked at the proposal and did not
accept the proposal. The next we heard was a couple of years
later when he filed--when he filed an antitrust suit against us
and against the members of the technical committee who he said
had kept him out of the market. We engaged in some discussions
with his attorney in the Atlanta area.
I went down for the discussions. He was present, and I said
to this antitrust plaintiff who had sued our organization,
``What do you think we have done wrong here?'' And he said,
``You have done nothing wrong here.'' Of course, his lawyer
almost strangled him for saying that. He said, ``I think your
organization is terrific. You haven't done anything wrong.''
And so what are we doing here? What we were doing here, the
lawyer said, we have to find somebody with some deep pockets.
And if we can push this thing far enough, and maybe this
organization has some insurance, of course you can't get
insurance for antitrust damages, but maybe they would be
willing to throw some money into the pot to get rid of this
thing. It was a basic nuisance suit.
He decided to dismiss us because he realized that he had a
client who wasn't going to want to pursue this against us. I
can tell you that just going that far and bringing that through
some discovery and dismissal cost us over $200,000, not
counting the time of our in-house staff.
Mr. Delahunt. That would have been considerable dollars.
Mr. Shannon. But it is very disruptive. It is very costly.
And if there were any basis for that type of litigation, I
wouldn't be here. And that is what we are trying to avoid, the
nuisance situation which is becoming a really big threat, a
much bigger threat in recent years.
Mr. Delahunt. Hopefully this Committee can address that.
But I would be remiss in not asking you where is your
organization located?
Mr. Shannon. Happily, we are located in Quincy,
Massachusetts. We moved there from Boston, and we were seeking
greener pastures, a few years ago.
Mr. Delahunt. And you are aware, of course, two Presidents
of the United States were born in Quincy, MA.
Mr. Shannon. And we are very pleased with the distinguished
representation we have had in Congress for a long period of
time, going back to John Quincy Adams.
Mr. Delahunt. To the current day. With that, I yield back.
Mr. Forbes. Gentleman yields back. The gentleman from
Virginia, Mr. Goodlatte, is recognized for 5 minutes.
Mr. Goodlatte. Mr. Chairman, thank you very much for
holding this hearing. I find it very important and useful, but
I don't have any questions.
Mr. Forbes. The gentleman from Massachusetts, Mr. Meehan,
is recognized for 5 minutes to put in a further plug for the
Commonwealth of Massachusetts.
Mr. Meehan. Mr. Chairman, I was going to ask Mr. Shannon is
there no office space available in Lawrence or Lowell or the
other areas in some of the other districts that he so ably
represented.
This is a great piece of legislation and I think there has
been a lot of bipartisan work that has been done on this, and I
think it is a bill that this Committee will move on and the
House will move on relatively quickly. I am curious to ask Mr.
Shannon, through his position with the National Fire Protection
Association, what have we learned--it is a little off the
subject--what have we learned in terms of standards from the
attack on the World Trade Towers and even to the extent that
you want to touch on it, the recent fire in Rhode Island.
Mr. Shannon. Thank you for that question, because I think
one of the things of standards development that is somewhat
frustrating for all of us is I don't think a lot of people, and
the public generally, and even, frankly, some public officials
don't understand the important role of private standards
development when it comes to protecting safety.
You know, one of the great stories on the darkest day in
American history, September 11, 2001, one of the great stories
that I think hasn't been focused on enough is the evacuation
that took place at the World Trade Center and the fact that
virtually every person who was in those towers below the floors
of impact got out. Now, there are a lot of reasons for that.
But one of the reasons is after the first attack in 1993, NFPA
and other organizations got together and worked--to work on the
evacuation of those very buildings. And I would recommend to
you and I will provide for you, if you like, because I think it
is instructive, photographs of the exits in that building prior
to the 1993 blast and after the 1993 blast, which were all
determined by safety officials working with private
organizations like NFPA--and we are very proud to have been
involved in that. And, they changed the lighting, the backup
power for the lighting, the railing, and the exits in the World
Trade Center, and that is just one example of what private
organizations like ours do to help promote life safety.
And we are so glad that the Federal Government has adopted
a policy of saying to Federal agencies, you know, use private
standards. Don't develop yourselves. Use private standards
because the process we have to develop them really brings all
of the people to the table.
The same is true with the West Warwick Rhode Island fire, a
horrible, horrible tragedy. And I think the greatest part of
that tragedy from my perspective, when you have a horrible loss
of life, that if the codes that had been adopted had been
enforced there, that never would have happened. The fire would
have never taken place and you wouldn't have had that kind of
loss of life.
I think the development of codes and standards is hugely
important. And you have to have implementation and enforcement,
and those are the pieces we are working on as well.
And I also want to say we are very, very proud to be
working with the Department of Homeland Security on questions
that might come up in light of the current threat that we are
facing. We write dozens of standards that are important to our
homeland security. NFPA last year, for instance, after the
anthrax scare, was pleased to make available to every fire
department in the country our protective clothing standards for
fire departments or hazardous materials standards. And we are
working on that and we are working on building evacuation
questions.
We just did a study for FEMA on the capabilities of first
responders and the needs of first responders, given the
terrorist threat we are going to be facing, and I am glad we
have got this partnership with the governmental agencies. And I
think I speak for everybody in the private standards
development world in saying that we think we have a big role to
play and we look forward to playing it and we appreciate your
assistance in making that possible for us.
Mr. Meehan. Thank you very much, Mr. Shannon.
Mr. Forbes. Let me thank all of the Members of the panel
for taking time to be here today for your testimony, for your
written statements, and also for the work you are doing in this
area. I want to remind everybody that the legislative record to
submit additional materials for the hearing record will be open
for 7 days.
I also want to thank the staff on both sides of the aisle
for the hard work that they have done on this legislation and
also on the hearing. If there is nothing else, then the hearing
is adjourned.
[Whereupon, at 10:50 am., the task force was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress From the State of Michigan
I am pleased to be a co-sponsor of this legislation offered by Mr.
Sensenbrenner and I am glad that after several years of work on this
bill, we are now holding a hearing and will hopefully be moving this
bill through committee soon. We have worked hard, along with a number
of standard development organizations, technology companies and other
private interests to craft a bill that will provide some protections to
encourage non-profit standard development organizations, or SDOs, to
continue their important work of collaborating to set pro-competitive
standards in their industries.
This bill provides a common sense safe harbor for standard
development organizations. Those that voluntarily disclose their
activities to federal antitrust authorities will only be subject to
single damages should a lawsuit later arise. Those who refuse to
disclose their activities, or those who take actions beyond their
disclosure, will still be subject to treble damages under the antitrust
statutes. This bill does not exempt anyone from the antitrust laws, but
it does apply the rule of reason to SDOs--so pro- and anti-competitive
market effects of an action will be considered before a violation is
found. Organizations that commit per se violations--making agreements
or standards about price, market share or territory division, for
example, would still be fully liable for their actions.
This policy has worked well for research and joint ventures under
the National Cooperative Research and Production Act of 1993. An
expansion of this policy to standard development organizations will
allow them to improve their innovative efforts, involve a wider range
of industries and technical entities, and improve product safety and
development.
I look forward to hearing from our witnesses today and I hope you
can elaborate on how this legislation will assist standards development
across a broad range of industries and products.
Letter in support of H.R. 1086 submitted on behalf of
The International Code Council
-